Financial Advisors Category
Question: I have been steadily investing in stock mutual funds since my early 20s. I have been following the buy-and-hold strategy, and unfortunately I have not been rebalancing my portfolio. Consequently, the vast majority of my portfolio is invested in growth mutual funds that have appreciated in value over the years.
I am now approaching retirement and want to reduce my risk. Should I leave my portfolio as is and invest any new money into fixed-income securities, or should I sell some of my growth mutual funds, which will trigger a substantial capital gains tax?
Answer: It sounds as if you’ve done a good job investing for your future. Now, you need to call in some help.
An objective, experienced, fee-only financial planner could take a look at your total financial situation Â including your age, life expectancy, risk tolerance, expenses and other sources of income Â to construct a portfolio strategy that will guide you safely through your retirement years.
This really isn’t a do-it-yourself project. There are too many ways to mess up your retirement income stream and too few ways to fix any errors you make. Take too much risk or withdraw too much from your accounts, and you could run out of money. Take too little risk, and the same thing could happen.
You really want professional help. Two sources for referrals are the National Assn. of Personal Financial Advisors (www.napfa.org or by phone toll-free at  FEE-ONLY) and the Garrett Planning Network, http://www.garrettplanningnetwork.com ).
If your portfolio truly is overweighted with growth funds, the planner perhaps in consultation with a tax pro might have you gradually sell off some of those investments so you can diversify into bonds, cash, value funds and international investments.
The good news is that the top federal capital gains rate, 15%, is low, so you should still have plenty of money to reinvest.
Q: I need help with deciding on where to take my 81-year-old mother to review her huge stack of IRAs and advise her on what to do with them. I have no clue on how to read them and neither does she.Â Â Do I take her to a financial advisor?Â A tax pro?
A: You may need both if she hasn’t started tapping this money and it’s held in traditional IRAs instead of Roth IRAs.
That’s because withdrawals from traditional IRAs are supposed to start in the year after the taxpayer turns 70-1/2. Failure to do so incurs substantial penalties. If your mother hasn’t begun withdrawals, she’s going to want to consult a tax professional on the best way to make things right.
Once that’s done–or if she’s been making the proper withdrawals all along–it’s time to consult an objective financial planner with experience in advising people in retirement. (You can get referrals from the National Association of Financial Advisors at (888) FEE ONLY, among other sources.) How her money should be invested depends on her risk tolerance and objectives.
The planner will probably recommend streamlining all those accounts. There’s generally no need to have multiple traditional IRAs, and all those accounts make tracking her finances much more difficult. Besides, she may be paying fees that she could probably avoid by combining her accounts.
Question: I am 51 and recently retired from a company after 30 years. I realize my savings will need to last for a long time and want to be as careful as possible. I’ve been talking to a financial planner that a friend has been using for several years. What questions should I be asking, and how can I research his background?
Answer: You’re right to want to get good advice on managing your retirement nest egg. Current life expectancy tables suggest you’ll live another 30 years, which means you could spend as much time in retirement as you did working.
The slightest misstep in these early retirement years can have grave consequences for the rest of your life. Many retirees discover too late, for example, that they’ve been drawing down their savings too quickly. Current research indicates you shouldn’t withdraw more than about 4% of your savings in the first year of retirement, and perhaps even less when you’re looking at a 25- or 30-year retirement.
The structure of your portfolio is vitally important, as well. The more you have invested in stocks, the more you can potentially withdraw over time. But you also may suffer big swings in the value of your holdings, which can be scary for any investor but particularly for those whose incomes depend on their investing acumen.
An objective, qualified financial planner can help you navigate these dangerous waters, but one who’s notÂ educated,Â experienced and ethical can be a disaster. At a minimum, he should have a respected financial planning credential such as a CFP (Certified Financial Planner) or a PFS (Personal Financial Specialist). The planning organization that bestowed the credential can tell you about any disciplinary actions taken against him, and you should check with state and federal regulators as well. (The planner himself should be able to point you to the right regulatory bodies, since they vary by state and by the type and size of his practice.)
You’ll need to know how he’s compensated–fees that he collects from you, commissions that he collects from the investments he sells, or a combination of both. (Collecting commissions doesn’t make him a bad person, but could raise conflict of interest issues that you’ll want to consider.)
You’ll also want to know if he specializes in investors like you, or if his expertise lies elsewhere. Managing income in retirement is a whole different ball game from investing money for retirement, so you’ll want to make sure you’re not his guinea pig.