Q&A: Finding a financial planner

Dear Liz: Your column on delaying Social Security suggests using a certified financial planner on an hourly basis to review one’s retirement plans. I have struggled to find one who charges this way. They almost all want to control your money for a fee. The one I found after some effort charges $500 to $600 an hour. Please make some recommendations. I don’t mind if the CFP is not local. I just want someone who is certified, reputable, with a reasonable hourly fee.

Answer: There are a growing number of options for people who want “advice only” financial planning from a fee-only, fiduciary advisor:

XY Planning Network is a network of planners who offer flat monthly fees in addition to any other options, including hourly or assets-under-management fees. Monthly fees are typically $100 to $200, with some planners requiring an initial or setup fee of $1,000 to $2,000.

Garrett Planning Network represents planners willing to charge by the hour, although many also manage assets for a fee. Members are either certified financial planners, on track to get the designation or certified public accountants who have the personal financial specialist credential, which is similar to the CFP. Hourly fees typically range from $150 to $300, with a consultation on one topic such as Social Security-claiming strategies or a portfolio typically taking two or three hours. A comprehensive financial plan may require 20 hours or more.

Advice-Only Financial is a service started by financial blogger Harry Sit to connect people with fee-only advisors who just charge for advice and don’t accept asset management fees. Sit charges $200 to help people find fiduciary CFPs who are either local or willing to work remotely. The planners typically charge $100 to $400 an hour.

Another option for those who don’t have complex needs would be an accredited financial counselor or financial fitness coach. Those in private practice typically charge $100 to $150 an hour, although many work on a sliding scale, said Rebecca Wiggins, executive director of the Assn. for Financial Counseling & Planning Education.

Thursday’s need-to-know money news

Today’s top story: How to extend your (working) life. Also in the news: Renaming your budget, growing your garden with only a little green, and why you should check your investment portfolio once a month.

How to Extend Your (Working) Life
Preparing to work past retirement age.

If ‘Budget’ Sounds Like a Bummer, Try Renaming It
Whatever helps you stay on track.

Grow Your Garden With Only a Little Green
It could save you money at the grocery store.

Check Your Investment Portfolio Once a Month
Ignorance isn’t bliss.

How to extend your (working) life

Many people plan to work past normal retirement age, by choice or necessity. But most aren’t taking the steps that could increase the odds they’ll be able to do so.

When asked what they’re doing to ensure they can continue working past 65, fewer than half of employees polled in the 2019 Transamerica Retirement Survey of Workers say they’re trying to stay healthy. Similar numbers cited performing well in their current positions (43%) or keeping their job skills up to date (40%). More than 1 in 4 say they aren’t doing anything to ensure they remain employed longer. In my latest for the Associated Press, why the workers of the world need to wake up.

Q&A: How to make retirement saving a priority

Dear Liz: One thing I like about saving for retirement with an IRA is that I can wait until April 15 of the following year and then just contribute a lump sum for whatever I can afford to put in that year. Is there anything similar with 401(k)? Or do I have to have the contributions come out piecemeal with payroll deductions? I keep revising the percentages, but then there is a lag time between when I revise and when that money is taken out. It is a hassle. It would be much easier to just make a lump sum contribution at the end of the year to my 401(k).

Answer: Many people have unpredictable incomes and variable expenses that make planning tough. If you have a steady paycheck, though, you’d be smart to pay yourself first by making your retirement contributions a priority.

It’s generally smart to contribute at least enough to get the full company match, even if that means cutting back elsewhere. Matches are free money that you shouldn’t pass up. If you can contribute more, even better. For many people, retirement plan contributions are one of the few available ways they can still reduce their taxable income.

If you discover after the end of the year that you could have put in more, you can still make a lump sum contribution to an IRA. Since you have a plan at work, your contribution would be fully deductible if your modified adjusted gross income is less than $64,000 for singles or $103,000 for married couples filing jointly. The ability to deduct the contribution phases out so that there’s no deduction once income is above $74,000 for singles and $123,000 for couples.

Thursday’s need-to-know money news

Today’s top story: Getting real about health costs in retirement. Also in the news: Watch your credit card rewards pile up with these 5 tips, learning the different types of mutual funds, and how hackers can steal your data at airports.

Let’s Get Real About Health Costs in Retirement
Making costs easier to predict.

Watch your credit card rewards pile up with these 5 tips

What Are the Different Types of Mutual Funds?
Learn the basics.

How Hackers Can Steal Your Data at Airports
Protecting more than just your luggage.

Tuesday’s need-to-know money news

Today’s top story: Why your financial aid may plummet after freshman year. Also in the news: 3 tricks to help you shop less, how FICA tax and other withholding taxes work on your paycheck, and why you should plan to retire even if you don’t plan on retiring.

Why Your Financial Aid May Plummet After Freshman Year
Preparing yourself.

These 3 Tricks Can Help You Shop Less
Curbing an expensive habit.

How FICA Tax and Other Withholding Taxes Work on Your Paycheck
What they are and how you can change them.

Plan to Retire Even If You Don’t Plan to Retire
Plans have a way of changing.

Let’s get real about health costs in retirement

You won’t pay for health care in retirement with one lump sum. That’s the way these expenses are often presented, though, and the amounts are terrifying.

Fidelity Investments, for example, says a couple retiring in 2019 at age 65 will need $285,000 for health expenses, not including nursing home or other long-term care. The Employee Benefits Research Institute says some couples could need up to $400,000 — again, not including long-term care. The Center for Retirement Research at Boston College hasn’t updated its figures recently, but back in 2010 estimated a typical couple could spend $260,000 for medical and long-term care, with a 5% risk that costs will exceed $570,000.

No wonder 45% of people in their 50s and early 60s have little or no confidence that they’ll be able to afford their health care costs once they retire, according to a survey by the University of Michigan.

In my latest for the Associated Press, a health care cost reality check.

Q&A: Here’s a case where taking retirement funds early might make sense

Dear Liz: My wife and I are both retired and receiving annuity payments. In addition, we have about $1.3 million in traditional IRAs and $350,000 in another annuity that will pay us each about $1,000 per month. We are moving from Texas to Arkansas sometime in the next year. Texas has no state income tax and pretty high property taxes, while Arkansas has lower property taxes but about 6% income tax. We plan to put down about $200,000 on a new home and obtain a mortgage for about $350,000 at about 4% interest.

Does it make sense to withdraw money from the IRA to pay down the amount we need to borrow for the mortgage? I can withdraw about $90,000 without putting us into the next higher federal tax bracket, if that makes any difference, and end up saving $5,400 in Arkansas income tax at the same time.

By my calculations, the return on the $90,000 would be almost $8,000 every year in reduced mortgage payments if we took out a 15-year mortgage. If we did the 30-year loan, that savings would be over $5,000. I don’t think we’ll achieve the same returns on $90,000 leaving those funds invested as they are in bonds or cash.

Answer: It usually doesn’t make sense to tap retirement funds to pay down a mortgage, but your case may be one of the exceptions. You have enough saved that the withdrawal won’t claim a big chunk of your available funds and leave you cash-poor.

We’ll assume you’re over 59½ and won’t face penalties for early withdrawal. If that’s the case, then you’ll also be facing required minimum distributions within a few years. These mandatory withdrawals, which must start after you turn 70½, would subject at least some of this money to taxation. The question is whether you want to pay those taxes now or later, and you’re making a pretty good case for now.

Before you withdraw any money from a retirement fund, however, you should consult with a tax pro or a fee-only financial planner, or both. Mistakes made in early retirement often have irreversible consequences, so you want an objective second opinion before you proceed.

Q&A: Bad Social Security math

Dear Liz: Regarding when to begin receiving Social Security payments: I would think that people should begin taking payments as early as possible if they can invest it rather than spend it, as a lot of money is “left on the table” between ages, say, 62 and 70. Your thoughts?

Answer: That argument was more compelling a few decades ago when you could get a 7% or 8% return on an FDIC-insured certificate of deposit. These days, there’s no investment that offers a guaranteed return as high as what you’d get from delaying the start of Social Security.

The “take it early and invest” approach also ignores the longevity insurance aspect of Social Security benefits. Most people face a real risk of outliving their savings, which could leave them relying on Social Security for most if not all of their income. Maximizing Social Security benefits by delaying your application can help you live more comfortably, should that happen.

Also, starting early can cause harm to whichever spouse survives the other. When one spouse dies, one of the two Social Security checks the couple was receiving will stop. The remaining spouse will get only the larger of the two checks, which is known as a survivor’s benefit. Maximizing that benefit can help ease the shock of going from two checks to one, so financial planners generally recommend that the higher earner in a couple delay his or her application if possible.

Thursday’s need-to-know money news

Today’s top story: Why you shouldn’t give up on public service student loan forgiveness. Also in the news: The life-changing magic of working a bit longer, why your financial aid may plummet after freshman year, and 7 thoughtful and unique graduation gifts — all under $25.

Don’t Give Up on Public Service Loan Forgiveness
The odds are slim, but still worth trying.

The Life-Changing Magic of Working a Bit Longer
It’s worth it.

Why your financial aid may plummet after freshman year
How you can prepare.

7 thoughtful and unique graduation gifts — all under $25
Celebrate without going broke.