Retirement Preparation

[Wds0410]

My wife and I are hoping to retire in February, 2014. We are planning on meeting our financial adviser from Merrill Lynch in early October to review our financial situation to determine if we have go/no go decision and if it is a go, how will the financial aspect of the retirement work? What is the draw down per year? What is the best strategy for social security? etc.

What I am looking for is if anybody else had a planning session like this and if so, what was provided by their adviser and how detailed was it?

Thanks.

 

[racy]

I would just caution you not to expect a definitive answer. A lot of assumptions go into coming up with a plan. For example, draw down assumes the future is like the (relatively recent) past, your best SS option depends on your assumptions about death date, etc.
If you are unfamiliar with financial planning then you'll probably benefit from the session. However, I would encourage you to educate yourself, it's not that hard to do your own financial planning. You might start here: Getting Started - Bogleheads
There is one definitive thing: your adviser will make money off your portfolio, and, over time can be quite a bit. (Google "tyranny of compounding costs")!
So, go to the session but educate yourself so that this is the last session you need.
Good luck on your retirement!

 

[pb4uski]

I suggest that you check out Quicken Lifetime Planner and run through the screens.

 

[bradaz2488]

My experiences with financial advisors/planners has been very mixed. I can see needed one if you have no knowledge at all of how to manage money and develop a retirement plan, but giving this type trust and power someone you really do not know is scary to me. I did run my ER plan past my advisor to get his feedback to make sure it correlated with the tools I was using. I agree with racy and pb4uski that you need to educate yourself & use tools (Quicken/FIRECal) to have a check and balance of what your advisor is telling you. Here are things that I think are critical to take to your advisor to plug into his model:

1: Detailed list of past annual expenses and how this will change post retirement. More travel, new hobbies?
2: Need to account for re-occurring big ticket items: cars, appliances, house maintenance, etc..
3: What inflation rate are you going to assume?
4: What AA risk level are you comfortable with and with this provide you with the required rate of return for your situation based on historical data?
5: Medical expenses. This can make or break a retirement plan if not thought thru correctly. This one is the biggest risk in my plan since I ER'ed at 49.
6: Define the optimal SS and tax strategy based on your plan & needs.
7: How long does your money need to last. In other words how long do you expect to live. This is a big unknown. Seems like most people use 90 or 95 just to be safe.
8: Do you plan to leave any money to family members or are you okay eating into the principle. This will drive your how much your expense rate & the AA risk level you will need to take to meet this goal.

One more thing. If this advisor is managing any % of your portfolio make sure you clearly understand how they are getting paid. Typically you pas a % of the funds manage, but some advisors will get kick backs for selling you on other financial vehicles like annuities. I'm not saying annuities are bad. Just be careful they are really looking after your needs and not selling you something that is not right or good for your situation.

 

[ERD50]

I would not trust any answer from a Financial Advisor.

Don't concern yourself with the level of detail they might provide. They often have apparently sophisticated programs that will print out pages and pages of detailed information and fancy graphs, all put in a fancy binder with your name on it. But they may all have very little meaning.

So what to do? Here's the general approach given by many here at this forum - in order to know if the info the FA is providing is valid, you need to educate yourself a little bit. Once you have educated yourself by that little bit, you can do this on your own, and save the considerable fees that these FAs charge. It is just that simple.

About 6 years before I retired, I got a plan done by an FA, as the MegaCorp was paying for it as a benefit. When I looked back at the binder, after I educated myself a bit, I realized it was worse than worthless. It was a dangerous thing, because it was not meaningful at all. I'm PO'd that I had to pay the taxes on that benefit, it wasn't worth that. It would not have been worth it if it was free.

Of the many things they did wrong, they really didn't get a good picture of future expenses, they just try to get details of current budget. They are not necessarily the same, and they missed a lot. Then they just do a Monte Carlo analysis (which I think is meaningless - averages are not your concern), and tell you you are set! Now let us manage your money for a mere 1%!

So get a handle on your future expenses, tally up your assets and pensions and SS, determine a joint Life Expectancy to plan for, and head off to a calculator like FIRECalc. Now you will read a lot of discussions here about investing approaches, but historically, any asset allocation all the way from 40%/60% Equities/Bonds to 90%/10% has had about the same success rates over a long retirement, so I wouldn't get too hung up on this.

-ERD50

 

[racy]

Wds0410,
One more thing, you might want to check this about Merrill Lynch:
Merrill Lynch jumps on the fiduciary bandwagon in retirement plans but critics see lingering conflicts | RIABiz

 

[bradaz2488]

I would not trust any answer from a Financial Advisor.

Don't concern yourself with the level of detail they might provide. They often have apparently sophisticated programs that will print out pages and pages of detailed information and fancy graphs, all put in a fancy binder with your name on it. But they may all have very little meaning.

Yep, I too got a big binder of graphs and charts when I met with my advisor before ER. I think he was a little pissed that I was not impressed with it at all and I was not interested in reviewing it page-by-page. All I wanted from him was feedback on the assumptions I had made for my retirement model, risk areas as well as the worse case scenario from his analysis so I could compare results. It seems if you have any level of financial knowledge it really pisses them off. They do not like to be questions on their strategies. A least this has been my experience with advisors I have dealt with...

 

[W2R]

Welcome to the Early Retirement Forum! And congratulations on your upcoming retirement.

My big brother is one of the few people on earth whom I completely trust, and he also happens to be a CPA and retired former CFO. So, he has a lot of education and experience in some areas, he is mathematically literate, he has had a lifelong interest/obsession with money, and he is trustworthy.

His advice to me before I retired was, "Nobody cares as much about your money as you do." He said that I could see a financial planner if I wanted to, but ultimately the responsibility falls directly on my own shoulders, whether or not I see a financial planner. There is no escaping that responsibility.

I think that was the best possible advice so that is why I am passing it along. Whether or not you see your financial advisor, just remember that he doesn't care about your money as much as you do.

 

[walkinwood]

Be sure to ask what annual fees the FA is going to charge you (probably a percentage of your assets) and then compare that with the recommended draw down. Its magnitude may provide enough incentive to educate yourself.

Also find out the expense ratios of the mutual funds (and up front fees) and compare them to what index funds or ETFs charge. This will let you know whose interests are put foremost in the plan.

All the best.

 

[MRG]

Depending on the FA there is norrmaly a 1 percect 12b1 fee. Then come front end loads, and trailing sales fees. Read and understand everything you commit to. Don't get wrong there are some FAa that do ok for clients, then there are others.

MRG

 

[Badger]

Any time I see the name Merrill Lynch my pucker factor increases to 10+. Your experience may be different but I was misled/screwed once too often. Fortunately I found this website. I took a few days, started reading from the first post, asked a few questions, and pulled my biscuits from the fire before they burned.

Cheers!

 

[courtjustshan]

I also have a thick binder from my FA which I immediately deemed worthless. The graphs are really just pretty pictures on top of poor analysis. I have learned more from this forum in a very short period of time than I will in a lifetime of meetings with my FA.

Welcome to the forum from another newbie.

 

[Meadbh]

I agree with other posters. Being educated about finance is a much better strategy than depending on FAs. Always take what they say with a grain of salt. If you develop a good understanding of finance, you will be able to ask the right questions. One of my Eureka moments was when I realized that I knew more about some of these concepts than my FAs did.

 

[jIMOh]

I would not trust any answer from a Financial Advisor.

Don't concern yourself with the level of detail they might provide. They often have apparently sophisticated programs that will print out pages and pages of detailed information and fancy graphs, all put in a fancy binder with your name on it. But they may all have very little meaning.

So what to do? Here's the general approach given by many here at this forum - in order to know if the info the FA is providing is valid, you need to educate yourself a little bit. Once you have educated yourself by that little bit, you can do this on your own, and save the considerable fees that these FAs charge. It is just that simple.

About 6 years before I retired, I got a plan done by an FA, as the MegaCorp was paying for it as a benefit. When I looked back at the binder, after I educated myself a bit, I realized it was worse than worthless. It was a dangerous thing, because it was not meaningful at all. I'm PO'd that I had to pay the taxes on that benefit, it wasn't worth that. It would not have been worth it if it was free.

Of the many things they did wrong, they really didn't get a good picture of future expenses, they just try to get details of current budget. They are not necessarily the same, and they missed a lot. Then they just do a Monte Carlo analysis (which I think is meaningless - averages are not your concern), and tell you you are set! Now let us manage your money for a mere 1%!

So get a handle on your future expenses, tally up your assets and pensions and SS, determine a joint Life Expectancy to plan for, and head off to a calculator like FIRECalc. Now you will read a lot of discussions here about investing approaches, but historically, any asset allocation all the way from 40%/60% Equities/Bonds to 90%/10% has had about the same success rates over a long retirement, so I wouldn't get too hung up on this.

-ERD50

I will second the value of the paper is higher before the financial plan is printed on it.
The insight the advisor gives might be valueable... my experience in knowing Merrill Lynch advisors is that most of them were good sales people, but not financial experts. If they have to call "other people" into the situation (an annuity expert, a social security expert, a CFP etc...) to solve your situation, you are best to educate yourself.

Here are questions I would ask the advisor:
Would using a claim and suspend technique on Social Security be a good thing in your situation?
What starting withdraw rate would be used if the income needed from investments is $X?
Do I still need insurance, and what kind?

I would then focus your research on those 3 things before meeting advisor, and see what answers you come up with.

For first question, get a SS statement for self and spouse
For second question, use firecalc or this calculator here
Planner Launch Page | The Flexible Retirement Planner
For third question, look at what insurance you have, and think about what you need. Depending on estate needs (paying estate tax or transferring wealth to family and charities), the insurance might not be needed.

 

[Cooked]

...
His advice to me before I retired was, "Nobody cares as much about your money as you do." He said that I could see a financial planner if I wanted to, but ultimately the responsibility falls directly on my own shoulders, whether or not I see a financial planner. There is no escaping that responsibility.
...

+1 Nothing is truer than this.

I act as a translator between my mother and her financial advisor. Her FA is honest and trustworthy, but that does not alter the basic human condition. Mom probably keeps this FA in a new cars. Not Lexus but Hondas. The FA does do a good job at emphasizing that she (mom) has enough and can afford anything that she wants.

I would step in and do the Vanguard thing, but then again where are my interests? Capital preservation?

 

[Meadbh]

+1 Nothing is truer than this.

I act as a translator between my mother and her financial advisor. Her FA is honest and trustworthy, but that does not alter the basic human condition. Mom probably keeps this FA in a new cars. Not Lexus but Hondas. The FA does do a good job at emphasizing that she (mom) has enough and can afford anything that she wants.

I would step in and do the Vanguard thing, but then again where are my interests? Capital preservation?

Capital preservation and family harmony! It can be a dance. My own mother wanted to benefit from my financial acumen (even to the extent of summoning me from abroad to attend financial planning discussions, at significant financial cost to me!) but would not trust me to manage her money. That was probably a good thing in terms of family relationships. My goal was to be supportive in helping her manage risk, without being controlling. She did eventually accede to her bank manager's strong recommendation to add my name to her bank accounts.....after repeated reassurances that I would not abuse the privilege. That turned out to be key when she became too ill to pay her own bills.

 

[Onward]

 

[obgyn65]

Again I agree with Meadbh.

I agree with other posters. Being educated about finance is a much better strategy than depending on FAs. Always take what they say with a grain of salt. .

 

[jerome len]

As others have suggested you need to start your personal education.

Overall, most retirement plans suggest you limit yourself to 4% of your portforlio each year to fund your retirement. But, depending on your income lever you have to worry about investment fees and taxes. And I suspect that Merril Lynch will want to charge you about 1% to manage your money for you. And, they will try to sell you some expensive product......managed mutual funds, annuities, etc. Think about it......you can take about 4% of your nest egg to fund your retirement and if you pay Merrill Lynch 1% to manage your account you will be giving them roughly 25% of your retirement cash.

Now you need help and education.....Stay active reading this blog, find out why others have recommended you become a Boglehead and do some comparison shopping. If your investments total about $250,000 or more contact Vanguard and ask them to do an evaluation......it's no charge if you inves with them. And, you'll hear about "cheap" index funds......that's what I use.

I'd also subscribe to Money and Kiplinger magazines. I'd visit a book store....maybe some on these blog will suggest a baisc investment book for you to read.....and.....don't do anything....sign anything with anyone until you gain some basic knowledge......good luck......go to work!!!!!!!

 

[David1961]

I suspect that the "details" provided at a meeting with your financial adviser would be mostly a sales pitch on how they should manage your portfolio. I'd be very careful and do your homework beforehand.

 

[Wds0410]

Thanks for the feedback. I should have been clearer that the meeting with our financial adviser is not a sales pitch. We have been working with him for about 8 years preparing for retirement and are fairly comfortable with him and the advice we have received over this time.

I was most interested in seeing what other people, who have had similar experiences with other advisers from other companies, had received when they had this discussion. Was there a game plan, how detailed, or was it just fuzzy?

I understand the tales of caution everyone is providing and while I am not an expert at this stuff, I am not a neophyte either. Somewhere in the middle I’d say just trying to make the best decisions I can.

 

[jerome len]

Thanks for the update on your history with your financial advisor.

You need to be aware, however, that the overwhelming majority of people on this blog are Bogleheads that don't want to spend 1% of their portfolio on any financial advisor from the "big" investment firms. They don't want to be sold annuities, hedge funds, managed high expense mutual funds.

Why do they feel this way? To repeat myself, the typical retiree will spend 4% of his assets in retirement. If you pay an advisor 1%, that represents 25% of your retirement income......regardless of whether you make or lose money that year.

Some folks don't want to mess with managing their financial resources....I have family members that feel that way......that's fine......keep your advisor......just know that it is very, very expensive to do so. The answers you are looking for would be a blog that evaluates financial advisors rather than a financial plan. Frankly, I'd look for a good independed advisor that works by the hour. Ask him what your options are, what choices you have and confirm that he doesn't accept commissions as additional compensation beyond his hourly rate. Then.....do what you're comfortable with.....you've earned the right to do so. Good Luck.

 

[Rex]

I too use ML and have done so for 15 years. It's important to me because he is good, he manages mother's money also (so no family squabbles) and piece of mind is worth the price of admission.

ML has a "retirement calculator" similar to others that he will probably present to you with the results. It's another "stamp of approval". The output includes a year by year model of your portfolio along with three models (conservative, moderate, aggressive).

ML will also help you set up an efficient withdrawal plan. We have chatted about that for years but no exact plan yet. With the combo w/BofA, ML has much more to offer for one stop and easy banking too.

In my world, his guidance is golden w/DW so it keeps things in check there also.

I would suggest open ended questions........

1) What have I forgotten to plan for?
2) What could derail the plan?
3) What happens if.....?

And then use his advice and all the other advice to make it work for you.

Congrats on meeting this milestone!

 

[MRG]

To your original question, I met every year for the last 5 with my Fidelity advisor. Much of it was my work with his guidance. Basically he taught me how to fish.

It was the right amount of detail (for me), with several contingency plsns built into the bigger plan. It cost zero, and I can get Fidelity index funds for .07 ER. I'm also able to purchase Vanguard or other low ER funds.

I know a smart woman with who worked for over 25 years in the mutual fund industry, she's a ML client and is very happy with them. I asked her what their fees were, she had no idea what it cost, either on ER or the long term costs.

There's no right or wrong way to do this. It's like, 'do I want to go to an upscale restaurant for prime rib, or cook it at home'? Probably tastes the same either way.

Good luck, hope you're on track for your date.


MRG

 

[Wds0410]

Jerome,
Thanks for the demographic update on the group's view point. It wasn't apparent until you mentioned the Boglehead leanings that I noticed the trend which is unmistakable.
Rex,
I think your advice is sound. We have been happy with our ML adviser as well. He helped with my wife's 401K and some other stock option advice in which he didn't have any skin in the game at all but still provided the advice when asked. I also like the idea of having a big name company with all of their resources to bear including the Bank of America connection.

By the way, what does DW stand for? I see it everywhere on the forum. I assume it refers to your wife but the actual meaning has me stumped. Having worked in the defense and telecommunications world, I really, really hate acronyms.