When most people begin to plan for retirement, their goals are usually simple. They want to put aside enough money to live the lifestyle they want and have a little left to pass onto their beneficiaries. They imagine that by saving and investing, they are already well on the path to a successful retirement – but in some cases, covering the basics won’t be enough to secure financial stability later in life.
Too often, people overlook small but crucial details. They might have a substantial savings account and a few investments, but they haven’t realized just how much of their retirement fund they lose to fees each year.
As Anthony and Michael Pellegrino point out in this episode, seemingly small costs can add up quickly. Mutual funds, for example, are positively riddled with small financial demands that run the gamut form 12B-1 costs to sub-account fees and trading expenses. All told, these administrative expenses can claim two percent or more of a person’s investment earnings for the year. To make matters worse, these costs are applied internally, so the client might never realize how much those fees carve out of their profits!
As an institutional fiduciary, Goldstone Financial Group can lessen the impact of administrative costs by bundling them into a single wrap cost – a fee which takes care of advisory costs, covers third-party money manager expenses, and allows for unlimited trading. By packing the fees into one institutionally-managed bundle, Michael explains, Goldstone advisors can lower administrative costs overall by shifting clients out of retail investment and into a more cost-effective institutional setting.
However, avoiding hidden fees is only half of the battle when it comes to savvy investment. Knowing who is managing your money and what their qualifications are, Anthony stresses, is just as crucial to your financial health. While the vast majority of client-facing financial professionals call themselves “advisors,” only registered fiduciaries are legally obligated to put their client’s best investment interests above their own.
Brokers, Anthony goes on to explain, are trying to sell a product. When they convince their clients to invest, they earn a commission. The nature of their occupation incentivizes them to sell more, even when the investment might not be in the client’s best interests.
All of Goldstone’s advisors are registered fiduciaries; as such, they have a legal and moral responsibility to put their clients’ financial interests above their own. Regardless of whether clients choose to sign on with Goldstone or another investment firm, however, Anthony and Michael believe it to be critical that they sift through hidden fees early and find a registered fiduciary to help them plan for retirement. Otherwise, clients run the risk of losing significant portions of their retirement savings to unnecessarily high fees and unscrupulous “advisors.”
For many career professionals, retirement is not traditionally a word to rejoice at hearing. Not only does it signal an end to doing work that they are passionate about, it can also indicate a loss of purpose and strongly connote an end to life itself. However, with people expected to live longer today than ever before, retirement is not so much an ending as it is a new beginning, offering people the chance to pursue their passions and new opportunities for meaning in their lives.
Today, leaving the traditional full-time work environment does not need to translate into golf, bingo, and rocking back and forth on the porch unless that is what the retiree wants. Professionals increasingly see the first weeks and months of retirement as an opportunity to take some time to plan the next stage of their lives. Following this brief period of transition, their new beginnings include continuing to work in their original or related fields in an advisory or consulting capacity, focusing on service ventures that benefit their communities, or becoming involved with other projects that fill them with purpose and satisfy them on an intellectual and personal level.
Another benefit of retiring in today’s dynamic world is that it enables people to enjoy more time with their families, travel, or follow through with other personal goals that improve the quality of their lives, all while they keep up with their professional interests. An increasing number of professionals transitioning out of the full-time workforce choose to travel abroad with their spouses and explore places they did not previously imagine they would see. It fills their lives with excitement and new experiences, and with the right mix of retirement saving strategies such as hybrid annuities and Roth IRAs, they do not need to sell all of their possessions to enjoy each other’s company while exploring the world.
Regardless of what work or activities people choose to pursue in retirement, it takes time—between just a few weeks and several months—to adjust to new circumstances and create new routines, so allowing for patience and exploration is important. However, despite the need for patience and some potential initial challenges to making adjustments to a new kind of lifestyle, many people find the process of reinventing and reinvigorating themselves to be fun. The evolutionary aspect of it also helps ward off the perception that retirement comes with an unattractive finality.
Those most successful at putting money away—whether through savings, investments, or retirement structures—most likely have at least one thing in common: They give regular attention to the picture of their finances and how they are managing them. Much like your physical health, your financial health is dependent upon taking a proactive, rather than a reactive, approach to its maintenance. For most investors this makes sense in theory, but when it comes to the actual implementation there is a lot of noise, all of which can be misleading if taken out of context, especially if the advice doesn’t necessarily pertain to your personal financial picture.
As we always remind our own investors, all good financial advisors will make sure to learn about your individual situation before providing any advice, so take this information with care. However, the four things we list below are crucial pieces of the financial puzzle, which apply to nearly anyone trying to grow wealth, in any amount.
Pay attention to your consumer-debt ratio: While pretty much a given, even the New York Times will tell you that you always want to be earning more than you are spending—probably because it bears reminding in this consumer-drive society. Your consumer debt ratio is determined by dividing your assets by your liabilities. Now, ideally, this number will be positive, indicating that you own more than you owe. More often than you’d think, however, the reverse is true. According to a study by popular Nerd Wallet, the average household is continually growing and currently at about $130,922. With social security disappearing, this is particularly concerning for the younger generations. More on that below.
Create an Emergency Fund: Like a savings account, this money sits aside in the event that you need access to an unusually large amount of liquidity, in a short period of time. The standard emergency fund amount recommended is the equivalent of three months salary, however, if you are a dual income home, make that the equivalent to 6 months of salary. Emergency funds ensure a certain amount of flexibility should something unexpected—a sudden accident or illness, or the need to take time off from work—befall you or your family.
Max out your retirement accounts: This is important at any age, and especially as you get closer to retirement, but its equally if not more important when you are young. In addition to the fact that social security is only guaranteed until 2035, this allows the younger generation to put money away when they don’t need to use it to care for dependents. It also encourages a habit early on, that will ideally compound over a lifetime. It’s also helpful to actively picture what your retirement looks like, so that you have some idea of the type of lifestyle you are saving toward, and what it will cost to support that. For more tips on saving for retirement read “Making the Most of Life After Work.”
Be respectful of inflation: This is true with regard to the national inflation we experience collectively, but should also be taken into account with the natural inflation that occurs in each of our lives as we age. Many people fail to track their earning and spending trajectories based on their future circumstances and situations, which can wreak unexpected havoc when significant shifts in spending are caused due to big life transitions, like moving or having a baby. Planning well in advance of the natural inflation of your life will also be helpful in protecting your financial health.
Credit Score: Of course, we can’t leave out the credit score. While bemoaned for its haunting qualities in many situations, your credit score can very easily be coaxed to work in your favor as long as you treat it right. And these days, it can dip or rise within a matter of days based on your recent financial activity. Some people simply ignore their credit score, allowing it to work entirely to their detriment by not paying attention, but those who are proactive about their rating can do infinitely more good. Just take a look at U.S. News and World Report’s strategies on quickly raising your credit score.
Studies show that those who are cognizant enough of their finances to be able to easily check in on and understand the above are far more likely to experience financial success because they are, in essence, conditioning themselves for it.
Visit Goldstone Financial for more information on how to ensure your financial health.
Whether they’re worried about credit card debt or just don’t have enough stashed away in a savings account, millennials face many financial obstacles that prevent them from saving for retirement. Setting aside money for retirement may not be at the top of this younger generation’s priority list when it comes to budgeting and organizing their finances, but there are several perks younger investors enjoy that many aren’t taking full advantage of during their prime earning years.
Here are just three benefits millennials enjoy when saving for retirement:
- Affordable Fees on Mutual Funds and ETFs
People looking to invest in mutual funds and ETFs typically pay fees based on the type of account they are maintaining and the amount of the deposit. However, some recent reports by Morningstar reveal that the average fees investors now pay has dropped significantly in the last 10 years, allowing for a significant increase in the value of the portfolio. Passive index funds, in particular, are attractive to millennial investors since these tend to perform better and now cost less than they did even a few years ago. According to Morningstar analysts, U.S. investors paid lower fund expenses in 2015 than ever before which is indicative of a positive trend
- Effects of Compound Interest
The markets are always fluctuating and any type of investment is never without any risk. While there is no guarantee that a certain type of account opened now will generate a very high yield come retirement age, investing when you’re younger does provide the advantages of time. Millennials who get into the habit of saving as much money now will find it easier to earn interest on the initial deposits as the years go by because of compound interest.
Even during years where returns are low, the savings rate will remain the same and accounts will continue to earn interest on the principal and future deposits. J.P. Morgan’s Guide to Retirement reveals the benefits of saving and investing early. Slide 16 of their presentation reveals that someone who ends up saving a total of $400,000 at a 6.5% interest rate between the ages of 35 to 65 would end up with a portfolio valued at $919,892. Meanwhile, a millennial who starts at 25 instead of 35 with the same investment and same interest rate ends up with a portfolio valued at $1,870,480 — almost double the return by starting 10 years earlier.
- Access to More Resources About Investing Education
It’s now easier than ever to educate yourself about investing and learn about the value of stocks, investment, and retirement accounts. Millennials who are even slightly interested in setting up a retirement account have access to a wealth of resources that allow them to make smarter financial decisions when they are younger and learn about their retirement account options. Many already use personal finance and budgeting apps to keep track of their expenses and set savings goals. They might also seek out books and other resources about financial literacy to keep up with the times and make smart financial decisions for themselves.
Millennials enjoy several advantages over other age groups when it comes to setting savings goals and planning for retirement. Those who take the lead on planning for retirement while they are still in their 20’s or early 30’s can look forward to building up an attractive nest egg if they make smart decisions today during their prime earning years.
The great thing about investing and financial management these days is that there is so much information available to investors. This makes it easier for financially savvy individuals to make big strides financially, but it also opens up the potential for a very large amount of misinformation to be passed along as well.
The saying goes, you can’t believe everything you read, and this is especially true when it comes to information in the financial sector. Many individuals and organizations count on people trusting their advice, so that they can make a profit regardless of whether that advice pans out for the investor or not, which results in serious misconceptions regarding best financial practices. These misconceptions range from complex investment deals to simple money saving tactics. If you’re wondering what myths could possibly impact people who are simply trying to save, you’re not alone. There are many who aren’t aware, and fall victim to these common errors. Here are a few pieces of advice to steer clear of, or at least check out with your financial advisor before heeding:
Put all your money into a savings account: A U.S. News & World Report Article points out that “Interest is the primary reason for depositing cash into savings rather than a checking account or stowing it under the mattress. Every effort-free dollar earned via interest is a dollar you won’t have to earn the hard way: working.” To this point, it’s important to consider what the yield is when comparing the interest rates banks offer to other investment options. There may be some with significantly lower yields, which is compounded by the fact that savings accounts cause you to lose money over time because their low interest rates do not keep pace with inflation. Savings accounts also expose people to bank fees and other hidden costs, such as money withdrawal limits on savings and money market accounts.
Whatever you do, cut back on spending: Steve Siebold, author of How Rich People Think, points out that people actually make less progress accumulating wealth when they are focused solely on spending less. The bigger motivator to accumulating wealth is when people concentrate more of their energy on bringing in more money. “The real key is earning,” he says. No matter how much you save, you won’t acquire wealth unless you are making money, not just putting it away.
Follow in Your Parents Footsteps: Okay, so this is the one time your mom might be wrong. What worked for your parents in terms of saving money, might not necessarily work for you. The notion of saving money by investing in real estate and looking to traditional savings accounts to stockpile cash has changed significantly in the past decade. Many individuals, and even many investment firms, are slow to catch on to the changes in the marketplace, as discussed in our blog 60 Years the Same. This is a dangerous trend for individuals who fall prey to their outdated advice.
Pay with Cash: While it’s always important to avoid spending money you don’t have, believe it or not, using credit cards can open you up to potential savings opportunities you wouldn’t be able to take advantage of otherwise. Thanks to points and rewards, you are better of using your cards strategically each month to reap these benefits, as long as you can pay your balance off at the end of each term.
Saving isn’t necessary until later in life: Many young people starting out their careers fall into a pattern of living paycheck-to-paycheck, convincing themselves that they have their entire lives to save for retirement. While this may be true, it doesn’t account for the fact that the money you save—if invested properly—can compound at a much greater percentage the earlier you begin putting it away.
When it comes down to it, all these myths point to some very real shifts in the financial marketplace. The myth really lies in the idea that saving money will help you make money. It won’t. While it might prevent you from spending what you have, by comparison to other options it misses the mark on what your money can do for you when it’s not being spent. Standard savings accounts aren’t necessarily the best way to “store” your money, when it could have much greater returns living elsewhere.
A good financial advisor will not only keep you abreast of any misguided information, he or she will also be proactive about helping you realize when your money isn’t performing as well as it should. In most cases, keeping your money in a savings account or falling into one of the other misguided notions above can actually keep you from making money. One of our priorities at Goldstone Financial is helping our clients review the decisions they’ve made in the past with regard to their finances, as well as those they will make in the future. We are incredibly hands-on in the process of helping clients determine whether their sources of information are reliable, and good choices for their specific goals, at the given moment in time.
This post was originally published on GoldstoneFinancialGroup.net
Finding a financial advisor is never easy. After all, it’s more than simply finding someone with proven skill and a reputation that is appealing to you. You have to find someone you can trust. Your financial advisor is going to be intimately aware of your finances and guiding you through several big decisions.
Whether you already have an advisor you trust, or are looking for one, these 5 must-ask questions will help you build a partnership with your advisor and maintain a positive relationship throughout.
Are you a fiduciary?
A fiduciary is simply someone who has to place their client’s interest ahead of their own. Fiduciaries also have to disclose what their fees are, how they are compensated as well as any other potential conflicts of interest that may influence their decisions. Non fiduciary financial advisors might receive a commission in exchange for selling you a particular investment that isn’t right for you, and not tell you how they profited from it.
How are you compensated?
If this information isn’t available on your advisor’s website, it’s important to ask in person. There may be an initial planning fee, as well as a percentage charged for assets under management. Some advisors may make money from selling you a particular product. Beyond finding out how much services will cost, this question will also help you determine if they have an incentive to sell you certain things.
What licenses, credentials and certifications do you have?
Certified financial planners (CFPs) are fiduciaries certified through a comprehensive ten-hour exam, and have multiple years of financial planning experience. A registered investment advisor (RIA) is a fiduciary who may be required to register with the Securities and Exchange Commission depending on how much money they manage. Asking your potential advisor about their certifications may be the difference between getting yourself a money manager or an advisor who will arrange a plan for you.
What types of clients do you specialize in?
Some financial advisors have a niche, or specialize in clients with a specific interest. Such as charitable giving or socially responsible investments. If you’re a newlywed or recently divorced, there are advisors who specialize in those areas too. Finding an advisor with whom you have things in common can often help build a successful relationship. An advisor who’s a similar age as you, or has business experience similar to yours can ensure that you’re always on a similar page when making decisions.
Ask to see a sample financial plan.
Financial plans don’t have a set structure. There is a wide variation in advisors’ approaches to plans, and asking to see a sample can help you understand that advisors workflow. Some advisors may give you 50+ pages with technical terms, charts and graphs, while others may simply offer a big-picture summation of your plan. Whether you want more information or less, it’s beneficial to see how an advisor works it out.
In addition to these questions, make sure to do lots of due diligence research on your own. Get recommendations from people you trust, particularly people with similar financial situations, needs, and outlooks are similar to yours. Make sure to Google them thoroughly, read through their LinkedIn and comb through their website. Goldstone’s website for instance, contains a breadth of information, including media materials and bios of our principle advisors. If your current or potential advisor’s info isn’t readily available on their website, you may want to ask why. We recommend you do the research.
Of course, these are only five suggested questions; don’t be afraid to ask as many as you need. The most important thing you can get from asking questions is peace of mind.
This post was originally published on GoldstoneFinancialGroup.net