Hello and welcome to this month's Jump-Start Your Financial Plan chat. NAPFA experts Phil Watson, Jim Heitman, Lon Jefferies and Eleanore Szymanski will be here to answer your questions Thursday, June 20, from 1 p.m. to 3 p.m. EST.
You can ask questions early by signing in with your name and clicking "make comment." Your question will then be submitted and held for approval until Thursday.
See you then!
Hello, this is Lon Jefferies, fee-only CFP and NAPFA member with Net Worth Advisory Group in Salt Lake City, UT, signing in.
Hello, this is Phil Watson, a NAPFA-registered Fee-Only Advisor in Franklin, Tn.
Good afternoon to you too.
Hi Lon and Phil, happy to have you today!
Well, actually, it's good morning to you, isn't Lon?
Thank you. I'm happy to be here.
Welcome to this month's NAPFA chat, everyone! We're happy to have Phil Watson, Jim Heitman, Lon Jefferies and Eleanore Szymanski answering questions today. Let's just give everyone a couple more moments to get logged in.
Alright, let's jump into the first question:
Hi Deans. I'd encourage you to ask yourself what benefit you hope to obtain from a financial advisor. Remember that a truly comprehensive financial planner helps with more than investment management. Could you benefit from help with your retirement planning, insurance coverage, tax and estate planning? If so, there may be no need to wait to start looking for a planner who can meet your needs.
Dean's, that's a very good question. My first response would be actually sit down and have a conversation with a Fee-only adviser through
an introductory session. Someone with a holistic view will likely be able to guide you through areas that you weren't aware of or have less understanding about. I agree with Lon, as well.
Alternatively, if you enjoy the DIY element, there may not necessarily be a need to work with a financial advisor full time. Consider utilizing the NAPFA website to find a fee-only financial planner in your area that charges an hourly fee, and meet with him occasionally to verify that you have your financial ducks in a row.
Vicki, that's unfortunate. I don't know of many 401k's that allow you to roll out of it, while still employed, although that question should be asked of your employer.
Vicki, in lieu of that, your mission may become one of educating your employer about the high costs of this plan. Is this a small employer?
Vicki, unfortunately, in most cases, you need to keep your 401k dollars invested in the 401k until you retire. However, for people approaching retirement, some employers will allow something called an "in-service distribution." Check with your HR department to see if this is something your plan allows. If that turns out to be the case, the funds can be rolled from your 401k to an IRA while you are still working. Be aware, this is usually not an option before age 55
, at the earliest.
Additionally, it sounds like you may have the right idea, assuming an in-service distribution isn't possible. Consider contributing only enough to your 401k to get your employer's full match, than make additional retirement contributions into a private IRA.
Savannah, thank you for the question. What is the rate of interest on your mortgage?
Savannah, if I understand your question right, this is often an issue of risk tolerance. What is your mortgage rate? Are you able to deduct the interest? Calculate the after-tax cost of the mortgage, and consider that a possible guaranteed rate of return on your money (if you choose to pay off the mortgage). Then, ask yourself if you feel confident you can obtain a better return over time in the market, of course being aware that there are additional risks involved. If you feel more comfortable with the guaranteed return of paying of the mortgage, that can be valuable to some people. Most people, however, assuming a competitive mortgage rate, find that investing for retirement still makes the most sense.
Hmmm, looks like Savannah may have ducked out? Let's try another until she comes back.
Sorry Holly, I'm not much for projecting individual stocks. My approach is to base investment decisions on your investment time horizon. If you intend to invest in these stocks for 10+ years, I'm always on board. If you look to invest and reap more short term benefits, I unfortunately don't have a good answer for you. Any thoughts Phil?
Holly, I don't know of evidence supporting market timing or stock picking, and therefore I do not offer advice on either. I do believe, and do find evidence to support having disciplined balanced portfolios at all times. As for up and down markets, dollar cost averaging into them will ensure some purchases at all points.
Great point on dollar-cost averaging.
Here's a question from Bill:
Sorry Bill. That's a question that exceeds my expertise. I'm guessing you'll need to contact the SSA with that one. Great question, and great job educating yourself about SS.
Holly, one follow up thought. I know that the "balanced portfolio," "dollar cost averaging," information can seem "plain, bland and vanilla," and is no doubt, boring. BUT....it simply works. Trying to pick individual stocks and the precise timing risks significantly underperforming the markets, over time. History shows that to be the common outcome. So, my best advice, again, is to build a nice balanced portfolio, whatever that means to your situation, and stick with it.
Looks like Brenda has a two-part question, actually:
Bill, I agree with Lon, and would add that I hope that 100%
hyperinflation is only a discussion point.
Brenda, concerning your 401k with a previous employer, the first step is to look into the quality of the investments offered within your current plan, and the expenses associated with those options. If you find that you have access to a wide range of quality investments with low fees, and you can establish a diversified portfolio, there may be no need to move the funds. Alternatively, if it turns out you aren't happy with the investment options, consider opening an IRA where you will have access to thousands of options and can surely build a low cost, diversified portfolio.
Concerning how much you should have saved, Fidelity recently came out with a study reporting that a 35 year old should have 1x their annual salary saved for retirement, and 2x their salary saved by age 40. Hopefully that gives you an idea of where you should be.
Brenda, first, I'm happy that you're thinking about this, even though it can be overwhelming. It's not an easy answer, nor exact, but you'll want to have enough in place to continue life for the beneficiary(s) toward the goals you would have them reach. Seek specific advice from a Fiduciary, a Fee-Only advisor with no interest in selling you a commissioned-based product.
Brenda, to add to Phil's point, familiarize yourself with the different types of life insurance -- term, whole, universal, etc. In most cases, fee-only advisors that truly have their client's best interest in mind will recommend the more cost-effective term policy.