Although it is normal to have corrections during any given year, 2022 is off to a rocky start in the market. The S&P, from peak to trough as of 1/21/22, is down roughly 8%. Volatility can be troubling to many clients in retirement who worry about their savings lasting throughout their lifetime. One solution to smooth out the volatility and reduce those worries is the use of a “safe bucket”.

What is a safe bucket? It is simply having part of your retirement portfolio in a safe place. If you are retired, or about to retire, and your entire portfolio is invested in stocks, you may be feeling concerned. During my career as a financial advisor, I have advocated for keeping roughly 3-5 years’ worth of spending money in a safe place. Let’s say that you need to spend $50,000 from your portfolio on an annual basis. You should have around $150,000-$250,000 in something other than stocks. This could be a combination of many other types of investments, like cash, CDs, bond mutual funds or other types of securities with less risk. In this example, if a client had $1,000,000 in retirement savings, that means that around $750,000 could be invested in stocks.

If this client called me during market volatility and expressed concern about their investments, I would agree with them that it is no fun to see our stocks go down during this time. With a safe bucket, however, the good news would be that this money doesn’t need to be spent for quite some time. Since we have a safe bucket in place in our retirement portfolio, we can safely spend from it when our stocks are down.

A good way to keep your “safe” investments separate from your other securities would be to create an account just for that purpose. A safe bucket could be an actual separate account where you only have safe investments in that account and do your spending out of it. When times are good, you can move some of your earnings from your other account(s) and replenish your safe bucket. This is simply rebalancing. You may already have this in place if you have a typical retirement portfolio based on your risk tolerance, such as a 50/50, 60/40 or 70/30 mix of stocks vs. bonds in one or more accounts but they are typically combined in one account

When the markets are going great, no one thinks much about where their funds are coming from.  During a correction, however temporary it may be, it may be a good time to review your withdrawal strategy with your financial advisor. It could be that establishing a safe bucket or reviewing the size of the one you already have in place, is a consideration.

As we enter 2022, I wanted to share a few thoughts about the previous year. Professionally, it was the most refreshing year that I have ever experienced. Starting my own wealth management firm in 2020 was a move of excitement for the future, with plenty of uncertainty. I knew that I had the experience to do great work for clients and had plenty of people that I care about cheering me on. When you work for a large company, which I was grateful to have done for many years, you are never one hundred percent certain if the clients that you work with are there for the big box brand or for you. I had that question answered many times over as I was able to reconnect with many clients that I care about. It is incredible to form new relationships that I had not previously known either from local outreach or client referrals. I have experienced the joy of putting myself out there in the community and connecting with other like-minded professionals. Our industry if full of great people who want to be a trusted partner to clients that they truly care about.

It has been gratifying to be a decision maker for my company in terms of how I will serve clients. I have been an employee my entire career and have always been told what to use and how to use it. Now I am on the other side of that table. Now I am a client of many firms who serve me and my clients directly and indirectly. Picking and choosing what software and services that I want to use has been an interesting experience. Now that I have had time to use various tools and get to know the people behind them, I feel that I have a solid lineup and a great process to serve my clients. Getting to know people in the industry through conferences and social media has been very helpful. I have gotten to know many other pros in the industry by reaching out after seeing a social media post or listening to a podcast. I have had CEOs of companies in financial services respond to me personally to offer me their resources and contacts if I need them.

Partnerships that I have in place for things like portfolio management, compliance, back office, trading, web services, marketing and practice management have been invaluable. We are all working together to make a successful outcome for our clients.

On the personal side, 2021 was a tough year for our family. The stress that comes from family members with health struggles can be overwhelming. I am so grateful for my network that always asks about how we are doing and offers support. We are in a better place now. Putting that support into action and charging ahead with a new mindset is what we are trying to do. I believe that 2022 offers a chance at renewal and putting our family on a better track.

Breaking news: My daughter is now engaged and will be getting married in the fall of this year, and we are excited about that. The plans are already coming together. I have been piddling around on the guitar for 30 years and have started taking lessons again this year. It is incredibly frustrating and fun at the same time. The challenge for me is alone time in the house where I can rattle the windows without complaint! I think our next house will have a studio with soundproof walls. My youngest son and I just got our passports and now our whole family finally has them. We will be plotting out where our first international trip will be. We are thinking about Ireland and are open to suggestions. A lot of this will depend on Covid restrictions and seeing how things progress in that area. Unfortunately, we just had to say good-bye to our 17-year-old Jack Russell Terrier that has been with us since she was a puppy. We will miss her. We are down to 2 dogs, a 3-year-old Basset Hound and an 11 year old Chihuahua. Recently, I dipped my toe into the cryptocurrency market on an extremely small scale. Being more knowledgeable in this area is one of my goals.

I am thinking about a lot of things that could be interesting such as a YouTube channel. My thought is posting short videos on topics that my clients and the virtual community want to know more about. Rotating videos between personal and professional is the idea. I would appreciate people letting me know topics that they would like to see a short video on. I could drone on and on about topics like 401k rollovers, how to structure a portfolio in retirement and tax loss harvesting, but would anyone want to hear about that? Making the complex simple is my specialty. As much as I listen to podcasts, I haven’t really considered starting my own. The space is crowded, but there is always room for more. I will be hosting at least a few webinars in 2020 and I am looking forward to that. I am confident that 2022 will be a great year of renewal for all of us and hopefully we can emerge from this frustrating pandemic and live normally for the most part. As the title of this blog says, I am very grateful to clients, friends, and family for their support in 2021 and cannot wait to see what the future holds.

We have all been there. Life happens. We have a big expense and we need cash quickly. This could be anything from a family emergency, to overwhelming credit card debt or a home remodel. The question for an individual or a family is always how to pay for the expense. You call your bank and hear about their personal unsecured loan “special” at only 8% or more. You look at your bank account and you may think that you just do not want to deplete your cash reserves for this expense. Then you think about that big pot of money in the company 401k plan that has been for the most part out of sight, out of mind. You wonder if you could use those funds for your immediate needs. You hear about the concept of a 401k loan and ask yourself if this is a good idea or not. Here are some pros and cons that may better inform you about this concept.

Positives of a 401k Loan

Let us start with the positives of borrowing money from your company 401k. If you are an active employee and have a balance in your 401k, some plans give their employees the option to borrow. While every 401k plan can be different, generally speaking, you can borrow up to 50% of your vested account balance, up to $50,000. For example: if your vested balance is $50,000 you can borrow $25,000. If your balance is $500,000 you can borrow $50,000. You receive the funds fairly quickly in most cases and you will begin to make payments on this loan with interest. You are removing funds from the plan and paying the funds back to yourself with interest through payroll deductions. The interest rate will be some nominal rate based on current interest rates that the plan sets.

You can generally borrow for up to 5 years with some exceptions. So, for example, if you take a loan out for $10,000 for 5 years at 5% interest, the payment will be $188.71 per month. If you get paid twice per month, you will have a $94.36 payroll deduction for each pay period over the next 5 years. You can usually pay off the loan early if you have the funds to do so. The funds go right back into your 401k as per your fund allocation instructions that are on file. 

There are no credit implications for a 401k loan, meaning you don’t have to submit to a credit check. After all, you are borrowing from yourself. 

Negatives of a 401k Loan

The first negative about a 401k loan is that the money is no longer in the 401k plan. A 401k is an investment plan intended for retirement. You can assume a certain level of growth over a long period of time if invested properly. The funds that you just borrowed are not in the plan and no longer working for you. They will be put back in slowly over time, but you may have missed out on some earning power during that time. That may make a substantial difference over an investing career of 20 or 30 years.

You may have heard that 401k loans are “taxed twice”. This is true. Assuming your 401k is all pre-tax, the contributions that you made came out of your paycheck before they were taxed. They are allowed to grow tax-deferred in the 401k. This means that you are “deferring” taxes on this money until you actually withdraw it, presumably in retirement. At this time, you will pay tax on whatever you withdraw. What causes the double tax on loans is this: you pay the loan money back to yourself with after tax money. Yes, that’s right. The loan repayment is made with after-tax withholding from your paycheck. The after-tax loan repayments actually go back in as pre-tax dollars. Then, in retirement, when you go to withdraw money for living expenses, you will pay tax again on that money. You may say that is a small price to pay for convenience and access to the funds, but that is a factor.

Because loan payments are paid back from payroll deductions, what happens if you leave the company and still have an outstanding balance? Some plans will issue you a coupon book to be able to continue sending in payments. Some plans just give you a certain amount of time to pay back the loan and then the loan will “default”. That sounds like a nasty term, but with a default, there are no credit implications. It simply means that the entire amount that is outstanding at the time of default will be considered taxable as ordinary income. You will receive a 1099R from the 401k plan for your taxes. If you are under 59 and 1/2, there could also be a 10% early withdrawal penalty on the outstanding balance. If you decide that you want to rollover your 401k to an IRA or new employer’s plan after leaving the company, this will usually automatically default the loan.

Some plans will only allow 1 loan to be outstanding at a time. If you need to take a second loan out and that is not an option, you will need to pay back the first loan, allow for some processing time and then take out another one. Some will allow many loans outstanding at once. You will need to check with your plan to see what they allow.

In conclusion, 401k loans are a convenient way to get needed funds quickly. However, the payroll deductions can be a burden to you as you are paying it back.  If you change jobs, you will need to be prepared for a taxable event if you are not able to pay it back. You may also miss out on earnings had the funds never been borrowed. If you do it once, you may be tempted to do it again down the road, almost treating your retirement savings as a bank. This will impact your retirement savings. For some it may be a better option to seek a conventional loan from a bank, or better yet, save for your purchase and pay cash for it when you are ready.  Only you can decide which option is best for you.

This information is intended for educational purposes only.  It is not intended as investment advice.  Investing involves risks, including possible loss of principal. There is always the risk that an investor may lose money. A long-term investment approach cannot guarantee a profit.  All expressions of opinion are subject to change. Investors should consult with a financial professional before making any investment decision.

We had a very bad experience several years ago where we had a black Labrador Retriever, who I did like very much and even took her duck hunting at times. She got out of our backyard and one day was hit by a car while we were away. She spent quite some time in the animal hospital, and just did not recover, so we had to make the decision to put her down. That was such a bad memory that I did not want another dog again.

About 2 years ago, my adult son, who was living with us at the time post college graduation was about to get an apartment with a roommate. He knew he wanted a dog and did not want to wait until he moved out. I was very adamant that I do NOT want another animal in the house that I would have to help take care of. I was overruled by the rest of my family and along came Sadie.

Sadie is a Basset Hound that we got from a rescue and she was about a year old when she came to be a part of our family. She is a beautiful dog and was about 30 pounds or so at the time due to not being fed properly by her previous caretaker. That dog was the sweetest thing that I had ever seen in an animal. She would come and crawl up on my lap to cuddle every morning while I was drinking my coffee. It almost became routine. The kids and I would take her to the dog park almost every night and she quickly came to expect it regularly and loved every second of it. She has been a major hit at the local dog park and everyone loves her.

Around the time that Covid hit, we were spending more time at home and less time in the office. My daughter, Sadie and I would go on some fairly long walks in the beautiful spring weather. I enjoyed it, but my feet were hurting not used to walking so far. I had run a full marathon 10 years earlier, but that endurance was long gone from my feet’s memory. Eventually, I got to be a stronger walker and my body got used to it and craved it.

Fast forward a year later, I now have a routine. Every morning, I have a couple of cups of coffee, get caught up on the news and head to the garage to work out. I had quit my gym membership when they closed due to Covid and I bought my own equipment. When I am done and walk back into the house, our dog Sadie is staring at me, wagging her tail and raring to go out on a walk. This has become an every morning routine. Rain, snow, wind or heat, we have to go.

What does this have to do with retirement? Well, I am self employed now after launching my own financial planning firm. During my career working for a large corporation, I once had a client who I had gotten to know very well and was a good friend. He had a stroke one day and died shortly after. His wife shared me that his last words were that he was in really bad shape. This had an impact on me in a big way. The financial planning industry focuses almost exclusively on all things money and how not to outlive your assets. One of my core beliefs that I know to be true is that health is as important as money in retirement.

During my time as a planner, I have seen retirement plans cut short or turned upside-down because of a health issue. We can not control everything through exercise, but I truly believe that doing your best to stay healthy, even walking the neighborhood everyday makes a huge difference. After all, what good is a sound retirement plan that I help a client put together if they can not physically enjoy their retirement?

When clients come to see me, we often talk about our exercise routines and health issues that they may be experiencing. The happiest clients that I see in retirement have a purpose and an obligation for someone or something other than themselves. Becoming stronger through weightlifting, making your heart healthy from walking or running and trying to eat right (my daily struggle) are things that produce happiness in your life before or during retirement. Get your significant other, or a friend to enjoy the walks with you. If you have an accountability partner that keeps you active, in my case, Sadie the Basset Hound, even better. Humans can easily blow off a workout or walk because they do not feel like it or they are tired or busy. A dog has no excuses or off days and will never leave you hanging. I have also become a podcast junkie and will always have my ear buds in listening to a fascinating show about some topic while we are walking.

By the way, the dog does belong to my son, and I told him that there is no way that Sadie will be going to his apartment. I jokingly told him that he could have “visitation rights” anytime he wants to come over!

While you are working for a company, you are listed as an “active” employee. When you leave, after about 30 days, your status is generally updated to either “terminated” or “retired”. There are other statuses, but we will focus on the most common. Terminated sounds terrible, but it just means that you are no longer an employee. There are 4 major options that we will discuss for your 401k when you are no longer active: 

1. Do nothing and leave your funds in the 401k plan 

2. Cash out the 401k 

3. Roll the 401k to a new employer’s 401k 

4. Rollover to an IRA 

Do nothing. When you leave a company, the vast majority of 401k’s will allow you to leave your money in the plan. This requires no action. You can still make changes to the investments, and possibly withdraw money, but obviously you won’t be adding more to it. Since contributions were made through payroll deductions, that all stops. The pros to leaving in the plan is the fact that you do not have to do anything. You may be happy with your investment choices. Some plans offer lower cost mutual fund shares vs. their retail counterparts. You may have very flexible withdrawal options as well. The downside to leaving your money in the plan is that most plans offer limited investment choices. You may have limited withdrawal options. In some plans it is all or nothing, and no partial withdrawals, which could be a problem when you need a small amount of cash from the plan. Some plans are very flexible and may even offer monthly automatic payments. You will need to check with your 401k provider on the options for withdrawal. If the plan allows for partial withdrawals, there is usually mandatory federal tax withholding at 20%, which could be excessive if you are in a lower tax bracket. Some plans charge an annual fee that is passed on to the participants. The exception to staying in the plan would be if you have a very low balance, usually less that $5000. You could be notified that you need to do something within a certain time period of they will just cut you a check. 

Cash out the 401k. This option unfortunately is a popular option for many people. I remember reading a study from a major 401k provider several years ago. Out of all of the terminated participants who left a company in that year, around 35% cashed out their 401k. This really got my attention. Sometimes the 401k balance may not seem like a lot of money if you contributed for a short period of time, but with the magic of compounding interest, it could grow to be very significant later in life. 100% of the 401k distribution will be taxed as ordinary income, except for roth contributions or after-tax contributions. Federal tax will be withheld at 20%, and if you are under 59.5, the distribution will be subject to a 10% early withdrawal penalty when you file your taxes (there are a few exceptions). There is also an exception called the Age 55 Rule, which we will cover later. If you have any loans outstanding, those will “default”, which sounds bad, but there are no credit implications. It just means the outstanding balances will be reported as ordinary income. 

Roll the 401k to a new employer’s 401k plan. This option would be for someone who wants to consolidate. If the thought of keeping up with too many accounts is too much, and you are going to work for someone else who offers a 401k, this may be a consideration. Rolling in your old 401k may count towards your ability to borrow from the new plan. If the new plan has more investment choices, you could invest these funds into them. The downside to this option is that you are still limited to the plan rules and investment choices. If you need access to the funds, you may not be able to get at them until you leave the new company. Many plans offer withdrawals for this source of money (Roll-Ins) while you are active. If you need quick access, this may not be a good option because of the plan’s process for getting money out, like mailing a check or paperwork. 

Rollover to an IRA. This is one of the most popular options, and for good reason. You can open a Rollover IRA with a number of institutions, such as banks, brokerage firms, insurance companies and others. The IRA is different because you are no longer a participant in a 401k where the rules are out of your control, but rather now you are a client. Using a brokerage firm as an example, your IRA is a brokerage IRA and you can literally invest in almost anything that you want. You can buy stocks, bonds, ETF’s, mutual funds, CD’s, precious metals and trade options. For most people, it is not that you would, but you could. You can usually get help from a brokerage company in terms of education on investing, and there are countless books, videos and podcasts to explain these concepts. If this is too much, or you just want to make sure that it is done right, you can have your funds professionally managed. If you need to withdraw money, you can link your IRA to your bank with most firms, or you can request a bank wire for same day funds. Withdrawals from an IRA are NOT subject to mandatory withholding, unlike a 401k. You can withhold nothing, or some other percentage that you like. A Rollover IRA offers the most all-around flexibility.  

Some people appreciate the simplicity of the 401k and lack of choices. Many people make mistakes with more investment choices, like trading stocks that lose value. There are many cases of unknowing people buying IRA annuities, which are insurance products, and years later discover that they are stuck with them with no liquidity. You need to be careful and consult with a competent professional that will help you make a good decision. 

Circling back to the 55 Rule: this is very important is you leave a company in the same calendar year when you are at least age 55, but not yet 59.5. If you were to rollover to an IRA, the normal rules apply to the IRA, and you need to be 59.5 to withdraw money with no penalty. Federal taxes always apply. If you were at least 55 when you left your old company, any withdrawals from the old 401k plan would be taxable, but penalty free. Now, as we discussed, the plan may have limited options for withdrawal as a terminated participant. However, if you need money before 59.5, the plan may allow for a monthly fixed payment from the plan or partial withdrawals. This could affect your decision to rollover to a new 401k, or an IRA. If the plan offers no partial withdrawals or automatic payments, and you need money, there is usually another option. You could do a full rollover of the 401k to an IRA and do it on a percentage basis. For example, you could instruct the old plan to roll over a certain percentage to your Rollover IRA and send you a check for the remaining percentage. That distribution would be taxable, but penalty free. This is a one-time option and should be carefully considered. 

This article does not cover every option, consideration or special tax treatment. Please consult with a professional who deals regularly with 401k plans to help you make a good decision. 

When you are doing your taxes in 2021 for the 2020 tax year, you will need to determine which is better for you, taking the standard deduction, or itemizing. The standard deduction for 2020 is $24,800 for a married couple and $12,400 for a single filer. Simply put, if you total up all your deductions and they don’t exceed $24,800/$12,400, it may be better to take the standard deduction. If your deductions exceed $24,800/$12,400 you may be eligible to itemize.

Charitable Giving-With the economy taking a turn for the worse due to COVID-19 followed by the government mandated shut-downs and widespread layoffs that occurred this year, there are many people in need. Charities that do their best to fill that need could use your help big time. Most people do not give enough during a given year to exceed the standard deduction that we discussed previously, because it is a high threshold to meet.

If you are a consistent giver, meaning you give this year and you know you will give next year, and so on…you may want to consider combining more than one year’s worth of gifts and donating them to what is called a donor advised fund. Most brokerage firms have their own version of this type of product. Your donor advised fund account IS a charity. For example, if I give $5000 to charity, church or other or non-profit organizations every year, what if instead I made two years’ worth of gifts to my donor advised fund account THIS year. I will be able to deduct the full $10,000 (assuming I can itemize) this year. The great thing is that you are in control. You don’t have to give all of the money to actual charities right away. You go online or call your donor advised fund account sponsor whenever you want to make a gift and they will send a check to your charity of choice and a letter saying who it came from. You can also give anonymously. You can even invest the money in your donor account. There are usually several choices to choose from. This account could potentially grow depending on how the money is invested.

Give away your capital gains-Before we leave the subject of giving, we should talk about the fact that giving cash is not the only way to give charitably. If you have a highly appreciated stock or mutual fund in a taxable account (non-IRA), you may want to consider giving away shares to that charity. Most charities can accommodate this request. Reach out to them and they will be glad to give you instructions. You can also donate stock or mutual fund shares to a donor advised fund that we discussed previously. Since you gave away the shares, the charity takes them and sells them. No one will pay tax on the gains and the charity gets to use the proceeds. You can usually deduct the fair market value of the stock on the day that you made the gift (again, assuming you can itemize).

Pro-move: Let’s pretend that you were considering making a cash gift to a charity, for example $5000. What if instead you donate $5000 worth of a highly appreciated stock or mutual fund to the charity, and then take $5000 cash and buy back the position that you just gave away. Now you have the same amount of shares you did before making the gift, but now you have a brand new cost basis on that lot!

Property tax– If you own a home and pay property tax, this is another potential valuable deduction. This deduction has now been capped at $10,000 per year, which hurts for those who have huge property taxes, but could still help many people. If you are looking at charitable donations, mortgage interest and property tax and feel that you will still not make it over the $24,800/$12,400 hump, you may want to considering what is called bunching. There is no rule that says that you can’t pay next year’s property tax this year. For example, if your property tax for 2020 is $5000 and you know that your tax for next year will be $5000 you could pay both year’s taxes this year and use that deduction on your 2020 taxes. This really may only benefit you every other year, but it is something to consider when tax planning. One important note to point out is that to deduct property tax on your Federal return, you actually have to have been assessed that amount.

Tax loss harvesting-With the potential for capital gain rates to go up with a new Federal administration, this is even more important to pay attention to. This is a simple concept. Let’s face it, we all want to pick funds and stocks that go up, but unfortunately sometimes we have a loss. If I sell an investment at a profit in a taxable account (non-IRA), I must pay tax on that gain. However, if I sell another security at a loss during the same year, those gains and losses could potentially wipe each other out. Let’s say that you sell stock ABC at a loss this year, you cannot buy the same stock back for 30 days. However, you could buy a different stock with the proceeds and still claim the loss. If you have more losses than gains this year, you can carry your losses forward to future years. This is referred to as a tax loss carry forward.

Check on your mutual funds– Mutual funds are notorious for distributing capital gains to their shareholders at year end, which create a tax issue for many investors. Mutual fund families usually give you a heads up on their websites as to estimated upcoming year end distributions, which are taxable to you. If you have a fund in a taxable account that is about to make a big distribution, you may want to consider selling the fund. You will have to weigh the cost of realizing gains from appreciation in the fund by selling, with the savings by avoiding the capital gain distribution. There are many sites that you can go to and enter the mutual funds that you own and it will give you an estimate of year end distributions, so you can act. Your advisor should be able to help you with these decisions.

Bump up your 401k-If you are an active employee and you have a 401k plan at work, this a good time to increase your contributions for next year. This can usually be done online. If you contribute on a pre-tax basis, this could help lower your taxes and increase your savings. Make sure that you are contributing at least as much as your employer matches. If you’re not where you want to be yet in terms of contributions, try increasing them by 1%. Small changes can lead to big outcomes!

Start tracking your expenses. The purpose of this exercise is not to put you on a budget, but to get you to start thinking about what you will need on a monthly or annual basis in retirement. Try and include everything and track it for about 3-6 months to see how consistent your spending is. Keep in mind, some expenses are not paid monthly, but annually. For annual expenses like vacations, HOA dues, insurance premiums or property tax, divide them by 12 so you can include that in your expenses as a monthly item. You can even further break down your expenses into two categories: Essential and Non-Essential. For some people, an expense like a well-deserved vacation is essential and non-negotiable! Be sure and label the items properly.

The next step would be to get a good handle on what sources of income will be available to you in retirement. For most people, Social Security will be their only source of guaranteed income. If you do not have a current estimate, go to www.ssa.gov to create an account and download your current estimate. If you have a spouse or partner, make sure and have them get their estimate too. Some other sources of income may be rents, royalties, pensions, deferred compensation payouts and annuity payments.

Now that you know what your expenses and income sources are, you can start thinking about what you will need to take from your portfolio during retirement. Example: Jim and Jane have determined that their monthly income need is $7000 per month. Their only source of income in retirement will be Social Security. Jim’s Social Security benefit will be $3000 at 67 and Jane’s will be $1500 at 67. Given these facts, we can see that they have a $2500 monthly “gap” in their retirement income vs. expenses.

Jim and Jane have a combined investment portfolio of $1 million and their income need from their portfolio to close the “gap” is $2500 per month, or $30,000 per year. 30,000/1,000,000= .03 or 3%. You may have heard the term withdrawal rate. Jim and Jane are planning are having a 3% withdrawal rate in retirement. Much is written about withdrawal rates. Many experts advise clients to spend roughly 3-5% from their retirement portfolio to theoretically never run out of money. There are many other factors, such as age and asset allocation, but this is a good guideline.

If you do this exercise on your own, and your withdrawal rate is way higher than 5%, you may want to reconsider your expenses or think about moving that retirement date out a bit to allow for the accumulation of more retirement savings. If your withdrawal rate is very low, you may want to think more about things that you want to do in retirement for yourself or others, such as travel or gifts.

If a person knew that they needed $30,000 to be available to them to spend on an annual basis, and would like to have it available to them within the next five years, what should they do? Just like we do not need to worry about the ups and downs of the market with money we do not need for a long time, we should worry about money we need to spend in the short term. Some would argue that 5 years away from retirement is a long time, but why take that chance. If you had retired in 2007, not knowing that a devastating recession was around the corner, and everything that you had invested was in stock, you would have had to sell shares at very low prices to accommodate your monthly spending needs. It may have even changed your plans to retire. This is not a scare tactic, but many would suggest that a safer route would be to take a few years’ worth of expenses and keep them in a safe place. If it is your company’s 401k, consider moving some of the money to a bond fund or stable value option. Call your 401k provider to see what safer options are available with part of your money. If you work with a financial planner, call them to let them know what you are thinking about and they should be able to provide that advice to you.

Are you leaving a job either by choice (such as retirement), or not by choice (such as a downsizing or an early retirement package offer), and are wondering what that means to your finances?

Have you been saving for years and starting to think about the next phase of your life, like retirement? You might be asking, “Do I have enough?” or “How much can I spend?”.

Maybe you are already with an advisor and have been for many years and looking for a change. Perhaps you think that the advisor is taking you for granted and you are not getting the attention that you deserve. Maybe the results have been lackluster.

Here are some questions that you should ask a potential financial advisor. Do not be afraid to ask these questions, even if they seem intrusive.

Are you a Fiduciary?

Being a Fiduciary means that you put your clients’ interest ahead of your own. That seems kind of strange that someone would even have to ask that question, doesn’t it? Being a Fiduciary is a higher standard of care. The reality is that the Financial Services industry is dominated primarily by financial salespeople. They are selling products to you that earn them a commission. The product may be appropriate for you, but that could have an influence on why it is being offered to you as a solution. Does the advisor have the freedom to choose the best solution for a client, or a limited number of in-house products and solutions?

How do you get paid?

Do not be afraid to ask how an advisor gets paid. I always welcome the question. Ask if they earn commissions on products that they sell. If so, how much? Ask if they get paid differently depending on what product they choose for you. Ask to see a copy of the Firm’s Customer Relationship Summary, which is designed to answer this question in plain English. If you want an in-depth understanding of the Advisor and/or his or her firm, ask for a copy of their ADV brochure. There are a number of compensation models out there: commissions on transactions, salaries, or flat percentage fee for assets under management (AUM). There also may be a combination. Ask if they have quotas, goals or contests. If an advisor’s desk is covered with company trophies, ask what they did to earn them. You should want your advisor to get paid well, but it should be a compensation model that you agree with.

What are my all-in costs?

What does it cost to be a client of the advisor? Do I need to have my assets managed by you to be a client? How much does that cost? What are the underlying fees (such as mutual fund expenses, commissions or transaction costs)? Can we work together on an hourly fee basis? Some advisors offer this for as-needed advice. What if we are not happy and want to leave the advisor altogether? Most investments or managed accounts are liquid within a short period of time. If the advisor has placed your money into an insurance product such as an annuity, it may be very expensive to unwind it if you are not happy, and you may be stuck for a number of years.

What are your qualifications?

Are you qualified to provide the advice that I need? You will have to judge this based on years of experience, education and certifications. Some financial planners will have their CERTIFIED FINANCIAL PLANNER® certification, which is the Gold Standard in the Financial Planning industry. This indicates that they have gone through extensive courses on 6 different financial topics and passed a comprehensive exam to earn the right to use the marks (You can look at their website for more information. https://www.letsmakeaplan.org). That being said, there are plenty of great and experienced financial planners who have not pursued the CFP® certification. It is also good to know who the typical clients are that they work with. If an advisor normally works with young professionals starting out and you need help with pre-retirement planning, they may not be a good fit.

How will our relationship work?

This question will let you know what the relationship is going to look like. How many times will we meet? In the first year? 2^nd year? After 5 years? Will my relationship be with the primary advisor, or will I be “transitioned” to someone else once we have implemented the plan? It is important to know the different channels of communication. Your advisor probably is not the right person to call with an address change or question about your statement. It is good to find out who is the right person or team to call up front for service issues, or planning questions.

What is your investment philosophy?

Ask a prospective advisor what their philosophy is. Are they a market timer? Do they believe in the principles of diversification? Do they prefer stocks and bonds or mutual funds and ETF’s? Not everyone is a reader, but asking an advisor what financial books they might recommend may give you some insight into their philosophy.

What asset allocation will you use?

Some advisors use software to determine your appetite for risk. Some will use a good old fashioned questionnaire. However they do it, it is good to know the process up front. There is amazing financial software in the industry that may suggest a certain allocation depending on your time frame, appetite for risk and income needs. Ask how they use technology to come up with an allocation.

These are just a few of the questions that may be helpful in sizing up a prospective Financial Advisor. This is a very important decision to make for you and your family. There are many great high-quality advisors out there and you need to find a great fit for you. People do business with people that they like.  You can find more details about any potential advisor at http://adviserinfo.sec.gov.