Welcome to today's Jump-Start Your Financial Plan live chat!
Thanks for joining us and for submitting so many questions early! We have a lot to get through.
We have three NAPFA advisors with us this afternoon: Jamie Milne of Milne Financial Planning, Inc in St. Johnsbury, VT; Bobbie Munroe Bobbie Munroe of Fraser Financial in Atlanta, GA; and Debbie Frazier of Frazier Financial Consultants in Chapel Hill, NC.
Thanks for helping out today Bobbie, Jamie and Debbie! (Lots of ie's!)
I look forward to answering your questions.
If you’re joining us for the first time, let me explain a little about how the live chat works: your questions will be submitted and held for moderation.
Hello, I'm Bobbie Munroe CFP in Atlanta (and soon to come, Tallahassee, FL). I look forward to spending this afternoon with you. Thank you Kiplinger for setting up this great opportunity for consumers.
Since we received many questions in advance, your question may not necessarily be approved right away. Please bear with us as we try to answer your question as quickly and thoroughly as possible! We will answer questions in the order they came in.
I am Debbie Frazier from Chapel Hill and I look forward to helping with questions this afternoon.
Jamie, here's a question for you from Steven
And Bobbie, here's one from Jay
And Debbie, you can take Paul's.
Hi Steven, great question. The process of setting up a Solo 401k plan should be easy. The custoidan you choose, Vanguard, TD Ameritrade, etrade should be able to step you through the paperwork.
Jamie, any insight into whether Steven should choose a Roth or Solo 401k?
Is it better to use the Solo 401k or the Roth is a great question. The basic issue is saving taxes today (always a good thing) with the 401k or saving taxes in the future with the Roth.
Jay, financail planners charge in many ways. I think that you are referring to charges for AUM/assets under management. These fees can range from 1.5% down to .5% (they often go down for larger amounts) but typically average about 1%. Some adivsors, like me, do work on an hourly basis (will depend on your market but expect 150 to 250) or project basis. Additionally for ongoing work, like investment management, I charge a flat annual retainer which is based on many factors to include the kind of service the client wants (how many meeting per year etc). I think such flat fee retainers are becoming more common.
Thanks, Jamie. Here's a question from Susan.
Ideally, with plenty of money to save, I like to use both, but assuming you do not use both, somethings to consider as you decide are:
Oops, sorry Jamie. Take your time ;)
Paul, this is an excellant and timely question. It brings up several rules for investing, diversification, time horizon and risk tolerance. The time you have for your money to work for you, the better rough patches are smoothed out. The more diversified accross different allocations (stocks, bonds, cash) and accross different industries, the better able you will be to survive rough seas in the market. Finally, know yourself. If every wiggles of the market has you a wreck, make your portfolio more conservative.
Bobbie, how about you take Susan's question.
Your marginal tax bracket now vs what you think it might be in the future when you take money out of the account. If you are in the 15% tax bracket today and hope to have lots of money saved for the retirement, you may find you are likely to be in a higher tax bracket during retirement --- then the Roth makes more sense.
Great advice Debbie, thanks. Here's another one from "MobToo"
That makes a lot of sense, Jamie. I'll follow-up with a few Kiplinger articles addressing the topic. In the mean time, here's a question from Steve Banks.
The reverse is true, high taxes today with anticpated lower taxes in the future gives the nod to the 401k
. I have a number of clients who were high earners that are now in the 15% marginal bracket. Steven, I hope that helps! Jamie
Steven, Jamie might not be able to tell you which is better because it depends on your individual circumstances. Perhaps you should check with an advisor. I will say that if you do choose to set up a solo 401K, whether it is traditional or a Roth, you might check with mrs401k.com. They make it easy and charge very little for their services, unlike many of the big name providers. Indeed, I helped a client set up one recently. Another advisor with a big company was going to charge $1500 per employee for set up and an ongoing fee. At mrs401k.com we got it done for very little..plus my minimal fee. And the ongoing cost was a very reasonable .25%.
Susan, there are a lot of good budgeting/cash flow tools on the web. Basically i have clients start with a sheet that lists:
MobToo, one would think that the popularity and rise of ETFs would significantly lower the expense ratios for mutual funds, but outside of the low cost king, Vanguard funds, I don't think they have been lowered appreciably, maybe under 1% for broad spectrum funds, but the specialty funds are still charging quite a bit.
1.All take home income per month (if you get paid biweekly this is your pay X 26 oay periods divided by 12 months in a year).
Then list expenses in 3 groups:
If you get the answer to that question, let me know. I have been saying that rates will go up -- but I"ve been saying it for about 10 years now. And again, raites dropped recently. Personally, I still favor funds/ETF for their diversification. You want to watch the duration (effective average maturity) of the mutual fund/ETF. The shorter the better for interest rate risk, but you'll give up some yield. The risk with individual bonds is even if you own 10 of them, one may defualt -- think Enron.
1. This you have to pay (already obligated) like rent, insurance, mtg, property taxes, minimums on credit cards.
Thanks, Debbie. Here's a question from Mike T.
MobToo, Be careful in using expense ratios to choose a mutual fund. The EFTs are unmanaged and in this environment, paying for a good mutual fund advisor is worth the expense.
Sorry about all the posts. I'l get the hang of it. 2. All the discretionary expenses like health clubs, gifts, personal care, eating out, groceries (yes you need to eat but how much you spend is variable), 3. This is all about the future: savings that are not included in your paycheck, vacations, big ticket purchases, downpayments for big ticket items AND money for major car or home repairs. Most people do these in order but I suggest you start with 1. the have to pay, then move to 3 to protect your future, and then use what is left for 2 the desretionary expenses.
Jamie, wouldn't it be nice to have a crystal ball? Here's a question from Dana
No problem, Bobbie. You've got some fast-fingers!
And thanks Bobbie, those are some great steps for someone just starting out. Here's a question from Mike B.
Mike, Many people want to have their house paid off at or near retirement. It is a lofty goal that many can not achieve. When making decisions on questions such as yours, I ask myself; "What do I know for sure?" In your case, you know for sure that you have a low percentage loan and paying an extra payment each year would reduce your years to pay. I like that one, but do not like using retirement funds to pay off the balance. Just work on paying as many extra months as possible until retirement.
HI Dana, I think I could have written your question. Basically, I agree with you, but every situation is different. I like to look at a portoflio from three perspectives -- Needed cash/cash reserve for a minimum of 3 years of spending needs (cash can be, savings, Money Markets and CDs).
Mike B, I am going to ask Kiplinger to ask another advisor to help you. Since I am fee only (as are we all), I have very little experience with annuities, particularly these blended products which often make it hard to see the forrest for the trees. Can anyone else help Mike B on this?
That's a good point, Bobbie. Jamie and Debbie, do you have any thoughts on Mike B's question? In the mean time, I'll try to dig up some articles from the Kiplinger archive on the topic.
