Countdown to Financial Fitness: Working with a Financial Planner

Countdown to Financial Fitness: Working with a Financial Planner: A friend of mine just took an early retirement package and immediately turned all his savings over to a financial planner. He's ecstat...

Working with a Financial Planner

A friend of mine just took an early retirement package and immediately turned all his savings over to a financial planner. He's ecstatic. I'm worried for him.

I'm not saying he shouldn't work with a financial planner. Unlike me, he has no interest in managing his investments. He can rebuild a car's engine; I don't even change my own oil.

But whether you do the work yourself or hire someone to handle it, you still need to know what you're getting, and how much you're paying.

For Christmas, I gave him and his wife a copy of my personal finance book, Live Well, Grow Wealth. They have yet to read it. (The problem with writing about personal finance is, the people who could really use the advice aren't interested, and the people who are interested already know about most of it.)

Before my friend visited the financial planner, I suggested he ask some questions. The most important one: how does the adviser get paid? I reminded him that in Chapter Six of my book, I cover working with a financial planner/adviser/broker/whatever and provide a list of questions/points to consider. If he and his wife didn't want to read the whole book, they should at least skim those few relevant pages before their meeting.

Right. He barely wanted to talk about what questions to ask, much less read about them.

The adviser came highly recommended. His parents and all their friends have been using the guy for years. He's a vice president at a major financial firm.

"Did you find out how he gets paid?" I asked, after my friends had signed over their nest egg.

"Oh, he doesn't charge us. We didn't pay him a cent."

Really? Is he a relative, doing them a favor? How does he stay in business if he doesn't charge his clients for his services? "Are you sure he doesn't charge anything? Maybe his fee comes out of the investments?"

"Yeah, it just comes out of the investments. We don't pay anything."

"Do you know what percentage he takes for managing your investments? One percent? One and a half?"

"I have no idea. I don't pay attention to any of that stuff. He's a genius, so whatever he charges, it will be worth it."

"Do you know what he's having you invest in? Mutual funds? Individual stocks? Bonds?"

My friend shrugged. "He had us move everything out of Fidelity over to his firm. I guess it's a mutual fund. My parents have been in it for years." (I couldn't help thinking about Bernie Madoff.)

"He sold everything?" I suspect the broker earned some hefty commissions from all those transactions.

"Yeah, he said it's better to sell everything and start fresh."

"Does he use publicly traded mutual funds? Or something proprietary to his firm?" (With publicly traded products, you can track performance independently. And if you ever decide to change brokerages, you can transfer the securities in kind, rather than having to sell everything at once, when it might be an inopportune time for some of them.)

Another shrug. "I don't care about that. He said we're on track to retire at 65 and we don't have to worry. He said we've done pretty well with Fidelity, but it's good we came to him when we did, because now we have the right mix going forward."

My friend is happy, and I hope he's right about being on track. He'll never know whether he could have saved money… or how much.

What are your thoughts about working with a financial planner? I'd love to hear your comments.

Sharon Marchisello is the author of Live Well, Grow Wealth.

Sign up for her newsletter at sharonmarchisello.com

Countdown to Financial Fitness: Savings During the Pandemic

Countdown to Financial Fitness: Savings During the Pandemic: It's been four months since our lives were turned upside down by the coronavirus pandemic. Dream vacations have been canceled. Wedding...

Savings During the Pandemic

It's been four months since our lives were turned upside down by the coronavirus pandemic. Dream vacations have been canceled. Weddings, commencement ceremonies, and reunions didn't happen. People have lost jobs, opportunities, businesses, loved ones, and even their lives.

The impact of lockdown, hiding from an invisible but deadly virus, has varied from total devastation to mere inconvenience. I'm fortunate—privileged—that my suffering leans much closer to inconvenience.

The Fourth of July wasn't the same in our town without its annual parade and fireworks display. My latest mystery was published in December, and I missed conferences, book signings, and author events where I would have had the opportunity to connect with readers and promote my work. We were booked on a cruise for April that didn't sail. Trivial disappointments compared to the real problems many others are experiencing.

On the bright side, I'm saving money. Lots of money on travel, as we normally take several cruises or other international trips a year. And I usually attend a couple of writers' conferences, where my expenses exceed what I earn back in book sales.

We've spent no money this year on movies in the theater, plays, concerts, or sporting events. My husband travels for work, so we don't eat out that much when he's home, but with many restaurants still closed to dining in, we're eating out even less.

Gasoline is cheaper these days, and I'm buying less of it. I'm not driving my car as much as I used to—my meetings that still take place are now on Zoom—so I can probably wait longer until the next oil change.

I haven't purchased new clothes or make-up since before the pandemic. I don't get out much, and make-up soils my mask, so why even put on lipstick and foundation when I go to Costco? And the Zoom camera feature is optional.

Hair salons have reopened, and I should really go get a haircut, but I'm hesitant. On one hand, I feel I should support the economy, help out those businesses that were forced to close, those employees who had to give up their livelihoods. On the other hand, I've been cooped up so long that I'm leery of nonessential public contact. I feel I should do my part to stop the spread of the virus so life can one day return to "normal"—if that's even possible anymore.

How has your life been affected financially by the pandemic? I'd love to hear your comments.

Sharon Marchisello is the author of Live Well, Grow Wealth

Sign up for her newsletter at sharonmarchisello.com

Countdown to Financial Fitness: Should You Take an Early-Out Package?

Countdown to Financial Fitness: Should You Take an Early-Out Package?: Many businesses, particularly those in the travel industry, have been hit hard by the coronavirus pandemic. Thanks to government assistanc...

Should You Take an Early-Out Package?

Many businesses, particularly those in the travel industry, have been hit hard by the coronavirus pandemic. Thanks to government assistance, companies accepting aid have postponed massive layoffs and pay cuts. But some are now trying to reduce their payrolls by offering early-out incentive packages.

I spent my career in the airline industry and witnessed many ups and downs. Every few years, the company offered early-retirement and voluntary-departure packages. Sometimes, they're very tempting.

In 2008, I took an early retirement package. It was right for me, and most of the time, I haven't regretted my decision. I did get chilly feet when the financial markets crashed after the ink was dry on my signed severance papers, and my retirement accounts were suddenly worth a lot less than before. Fortunately, my company invited me back to work as a contractor several times over the years, which enabled me to bring in extra income to rebuild and increase my investments instead of drawing them down.

My husband is now faced with a similar decision. To stay for an uncertain future? Or take a lucrative package now and go?

Here are some considerations if you're faced with the decision about an early-departure package:

·       What are you leaving behind? We spend so much time at work that it's hard to separate our professional life (camaraderie with colleagues, the vocabulary of the trade, inside information, perks of the job) from who we are outside of our careers. Of course, some of your work friends may leave, but some will stay, and relationships will change when you're no longer an insider. Do you enjoy your job? Will you miss it? If you stay, there might be some great promotional opportunities resulting from vacancies left by senior employees and grass-is-always-greener go-getters. On the other side of the coin, things may get worse and you might get laid off—without an incentive package. What is the company's prognosis?

·       What comes after? Will you feel lost without a workplace to go to every day? Or do you have plenty of hobbies and social activities to fill your days? If you're too young for Social Security and don't have a pension—and even if you can draw both—you might need to get another job. Have you researched the job market? At the beginning of 2020, unemployment was historically low and jobs were plentiful. That changed overnight. Even though recovery is looking better than expected, there's a lot of competition out there, and you might end up settling for a position much less attractive than the job you're leaving. Have you fine-tuned your resume and honed your marketable skills? Have you built your network?

·       What are they offering? Regular retirement benefits most likely won't change if you decide to wait, unless certain perks are being discontinued. In the "enhanced retirement" package my husband is considering, a severance check equal to six months' salary is included. A severance payment can be a great jumpstart for an emergency fund if you don't have one. But keep in mind, payroll taxes will be deducted, so the actual amount will seem much smaller than promised. My husband's package also comes with some positive-space passes, which are like gold for airline employees used to traveling space available on crowded airplanes, and not looking forward to being demoted to a lower standby priority after retirement. However, there is a finite number of confirmed tickets; it's not an annual allotment.

·       How will you manage without your major source of income? Can you afford to live without a paycheck? In my case, we were debt-free and had recently paid off our mortgage. We didn't have any children to educate. If you have a lot of bills, think twice about leaving unless you have a new job lined up. If you're lucky enough to have a pension and are ready to start taking Social Security, will that income cover your expenses and maintain the lifestyle you desire? If not, how will you make up the difference? Can you work part-time, or provide contract services? Do you have investments you can tap?

·       What will you do about health care? In our country, this can be a deal-breaker for many would-be early retirees, where health insurance coverage is still mainly tied to employment. When I retired, my husband was still working, and I was eligible to be covered under his plan. Now we're both eligible for Medicare. Nevertheless, premiums must be paid, and Medicare doesn't cover everything. Most retirees purchase supplemental insurance or a Medicare Advantage plan to bridge the gap. And the array of choices will give you a headache. My husband's enhanced retirement package includes a generous Retiree Medical Account (RMA). Similar to a Health Savings Account (HSA), it can be used to pay qualified medical, dental, prescription drug, and vision expenses, including Medicare premiums. Unlike the HSA, which the insured person controls, the RMA is controlled by the company. The account owner pays for the services upfront and then submits a claim for reimbursement. Still, an excellent incentive, provided the company continues to follow through with the obligation.

If you're faced with a decision about whether to take an early out/retirement/severance package, take your time to read all the fine print. Weigh the pros and cons. Write them down.

Talk to your colleagues. Keep in mind, everyone's situation is different. But they may uncover some concerns or benefits you've overlooked.

Discuss the situation with your family and make sure they are comfortable with the potential lifestyle changes ahead. If you don't already work with a financial planner, now might be the time to talk to one. Evaluate carefully so you don't regret giving up a valuable career before you’re ready, or passing up the opportunity of a lifetime.

What are your thoughts about leaving a job at this time? I'd love to hear your comments.

Sharon Marchisello is the author of Live Well, Grow Wealth.

Sign up for her newsletter at sharonmarchisello.com

Countdown to Financial Fitness: What to do with Your Stimulus Check

Countdown to Financial Fitness: What to do with Your Stimulus Check: Many Americans will be getting, or have already received, a check—or direct deposit—from the U.S. government this month. These Economic I...