Don’t Fall for The Social Security Ploy

The latest trick being used by many financial advisors and firms to get you to invest with them or buy their crappy products to provide value to their clients is to imply that they can help you navigate through the complex process of evaluating the seemingly infinite number of options available for taking your social security benefits.  But be careful, this advice could come with a very heavy price tag!

To be sure, how you take your Social Security is a very important decision, with many options, and there is definitely a degree of complexity.  You want to balance the pros and cons of the different filing techniques with your health, overall financial needs, and tax situation as well.  It is wise to try and get as much as you can out of the system – and good guidance from someone with experience in this area can help you make a good decision.

There is currently a mad dash between advisors and firms to be the “expert” on Social Security – the go to source that people turn to for help in making this decision.  And it makes a lot of sense – if you are going to be receiving advice on how to prepare for your retirement, seeking out someone who knows how to help you integrate Social Security into your overall process is smart.

If you want help with this, there will be no shortage of advisors that would be glad to set-up a meeting.  And they will likely ask you to bring in information on your assets.  This is legitimate since your overall financial situation impacts your decision.  BUT don’t be surprised when they look at your investments and start to roll they eyes.  It is likely they will have “recommendations” on how they can help you manage those assets too.  They might say things like “How did you end up investing in this stuff?” or “Who is managing this money for you?” or “So, you just let these sit here, no one is watching your funds for you?” or whatever else they will say to imply that you face financial peril without their assistance.

So be clear about what is at stake.  My belief is that most advisory firms are using this tool to grow their business – they want your assets.  That is the payoff.  You get help – they get your assets!

An approach you could take before meeting with an advisor is to ask them how much they would charge to simply help you on this particular issue.  Would it be $100 – or $300 – or $500.  Maybe $1,000 or $1,500.  See what they say.  (Frankly, while we don’t charge separately for this, I think several hundred dollars would not be a bad price to pay for getting good advice on this issue.)  They might not have any idea how to price out their time.  They might be surprised that you even asked. But proceed with caution if they say it is just part of their service to clients, or it is free, or if they press hard for a meeting without disclosing how they will be compensated for their time.

At PlanVision, we use Finance Logix as our on-line financial planning tool.  We like it and it is a good tool to help our clients plan for their future.  It uses Social Security Timing to help our clients evaluate their options and “optimize” their decision.  In addition, for an annual fee of $400 (our clients do not pay this fee), we use their upgraded planning feature to provide more information to our clients during their evaluation.   While we are not experts on this, we believe we should be competent in this area and able to help out our clients that ask for our guidance.  But we are also proud that we are not promoting it as a service we can provide while having a separate agenda –  getting more assets under management.

One Advisor’s Advice on Meeting with A Financial Adviser or Broker (Part 2)

Well, if you have to meet with an adviser then that is your problem.  But I suppose the following could be valid reasons for a meeting:

  • Your married to your adviser
  • Your adviser is a good friend or is in your Family
  • Your adviser has an awesome office with comfortable chairs and a great view
  • Your adviser gets you tickets to cool things and always has this fantastic customer appreciation event and you want to be invited again
  • You are always impressed with what your adviser says, even if you don’t understand it

or maybe

  • You need help with investing
  • You want to put together a plan for your future
  • You have some other financial matters, such as reviewing your cash situation or debt issues
  • You have had a life change event that requires you to evaluate or consider your options
  • Your investments are changing rapidly and you need to make sure you are doing the right thing

There are other reasons too.  In fact, meeting with an adviser can be an important step in helping you make some smart decisions about a wide variety of issues. There are many advisers that can provide outstanding guidance when you need it most.  Alright, so maybe my suggestion to avoid meeting with an adviser or broker/dealer is not great advice!

However, if you call a meeting with an adviser, make sure it is on your terms.  I would suggest sending your adviser, or prospective adviser, an e-mail listing out what you want to discuss and how much time you have.  Let your adviser know that you want to hear their suggestions and ideas – that is why you are meeting, right?, but that you would prefer they be specific to your needs.  If they have any new products or ideas they are going to introduce, ask how they will be compensated for those products.  Frankly, it is better for both parties if you share your experiences and prejudices with your adviser before the meeting.   You could also ask them to describe their experience with your issue(s) and an example of what they have recommended to other similar clients.

Be prepared for your meeting and stay in control.  It is your money and your future, so be sure you keep your meeting moving towards your objectives!

One Advisor’s Advice on Meeting with A Financial Advisor or Broker (Part 1)


It’s Just a Plan – Relax!

So you did a financial or retirement plan.  Congratulations – right??!!  That is a good thing (unless you ended up buying or investing in crappy products because of it – ooops!).  I am happy for you.  I am even happier if you paid me to help you do it!! It is a great way to provide a more solid foundation for your life today and a sense of where you are headed.  It can also help clarify steps you can take now to reach your goals and establish personal and financial priorities.

However, don’t freak out if the plan starts to go off track.  If you are a normal person, it is likely that is going to happen.  Life comes up.  Completely unexpected things happen – or you do things that you couldn’t have anticipated.  Maybe you make a mistake, or two, or three, or twenty…  Or you have a sudden change in your personal relationships.  Or you make a bad career move.  Or you took a trip to Ireland.  Or you smoke.  Or you bought an expensive coffee.  Or something happened.

Don’t obsess about your plan (or listen to advisors that treat your plan they did for you like it is the blueprint for your future).  It isn’t!  It is ok to deviate and even make mistakes and it is unlikely that they will cost you 10 years of hard labor at the end of life.  When unexpected things happen, address them on your own or with your advisor.  Discuss how you may have to modify your goals.  You can even create a whole new plan – and this one could be even better.  Or not!

FINAL IMPORTANT POINT (BOLD AND IN CAPS!!!):  Understand that the assumptions that make up your plan can end up being totally wrong!!  I spend a meaningful part of my planning sessions with my clients emphasizing this.  Know the flaws in your plan.  There are far too many variables such as return rates, savings rates, employment situations, longevity, retire dates, inflation, interest rates, etc… that will simply not turn out the way you expected.

Avoid the Maze – Do Your Plan in 30 to 45 Minutes

This image does a great job of presenting how middle class people should get their retirement or financial plans done.   If you can avoid all of the unnecessary nonsense and sales crap (the maze), it shouldn’t take more than a few moments to get a personal financial or retirement plan prepared and explained.  Here is how you do it:

1)  Discuss with your advisor what you want to do and how you think about investments.  This is no 2 hour meeting.  The goals for the middle class are simply not that complicated – retirement, college savings, open your petting zoo, whatever.  Also, you don’t need to explain your relationship with your Mother, or how you were treated in middle school, or your deep dark secrets.  Your advisor needs to understand your situation, but they are not your shrink.

2)  Get your data together.  Assets, how much you are contributing to them, stuff you might sell later, social security estimates, pensions, etc…  In my experience, this takes people a while and holds up many plans.  Don’t let it stop yours – get it done!!!

3)  Do the analysis!  You give your stuff to your advisor, they produce the report. Once the data input is done, it is ready to go.   Then you review the results.  At PlanVision, we use Finance Logix and can show our clients the results right off of our computer. We run what if scenarios and change the assumptions to see how that affects the results.  If you want the big, giant, bound, story of your life and future PERSONAL FINANCIAL ANALYSIS produced by many advisors, that is up to you.  For the most part we think it is a waste of time.  We can’t justify those outrageous documents.  It’s not that complicated and the steps you need to take are usually straightforward.  By the way, many of the reports are designed to impress you and sell you products you don’t need anyway, so watch out!

4)  We believe the most important work we do is helping people understand their options and what they need to do – what might actually happen.  This is done by presenting the plan, its risks and flaws – how it could get sidetracked, and putting those in terms of how it will affect your life.  This simply shouldn’t take that long at all.

That is the whole process – from beginning to end.  It is likely you will have some follow-up work to do, but doing the plan, so you know where you are going and what to do is next, is how you get going.


Retirement Planning, Expenses, and Withdrawal Rates

I read many retirement planning blogs.  Some of them are really, really good and have useful information.  Some of these are also very technical in nature and seem to be written for actuaries or statisticians.  Much of the focus over the years has been on the correct withdrawal rate that people should use so their money doesn’t run out during their lifetime, which is a bummer.  From what I can tell, most of the commentary seems to apply to people that have quite a bit of money, or the “high net worth individual” – not necessarily for people that have between, say $100,000 and $750,000 in retirement assets.  I would call these “regular” people.  Or, “low net worth” individuals.

So here is what I say – If you are in the middle class, or lower middle class, or the class below that, otherwise known as the lower class, spend just as much time as you can in figuring out your expenses and your budget.  Try and get that under control.  What matters most when it comes to your future may not be trying to figure out the right amount to take out but also figuring out the right amount you need!  Obviously the two are tied together, But don’t get so focused on your investments that you lose track of what you have control over, which is what you save and what you spend.

When I do retirement plans for my clients, and I do a lot of them, this is such an important factor.  In my view it is the most important factor (unless you’ve got $10,000,000, and none of my clients do).  Targeting a number you can live off, your annual budget, is critical to knowing if you can retire when you want and do the things you want.  You can figure out the rest of it once you know your budget.

1 on 1 Help!

This is what we do at PlanVision – it is kind of important to our whole business model.  It’s the energy of our firm – helping regular people in the middle class on a one-on-one basis.  We do it in 1 minute increments, or in hour long sessions, whatever it takes, wherever and whenever our clients want (well, within reason). Why and how do we do it?  Because we know it works – and what else would we do!

Rick Ferri wrote very well about the continued role and importance of personal assistance in the financial services industry here. These are the principles that have helped shape how we provide guidance to our clients:

1)  Financial planning, and advising, can be simplified for almost everyone.  It does not need to be some mysterious process that can only be known to industry insiders.

2) People do not necessarily need to meet with an advisor regularly to review their financial stuff – see point 3! Some people like that, it helps them feel more comfortable about what they are doing, but for many people it is just not necessary.

3) For most, simply having an advisor available for a quick call or meeting to bounce an idea off of, get a second opinion, or clarify a question or concern is more important than an account review.

4) Seminars at work, or provided by advisory firms in public, can be a good way to supplement personal meetings.  However, they have serious limitations and are far less effective than 1 on 1 guidance, for all these reasons.  Besides, almost all advisors use seminars for business growth.  They are fishing for clients – so be wary of the content at these events.

5) People learn when they are ready – when it fits into their life or an event forces them to learn more.  We do not provide guidance on our terms – we are available when they want to start.

6) People want to know how investments and financial planning affect their situation – not just in theory. How does this stuff impact me and what do I need to do about it?

7) Generally speaking, people learn about this stuff incrementally.  Lengthy meetings that review several topics are not as effective, we believe, as a series of shorter interactions which all build upon prior information.

8) Regardless of where they are in life, people start at different points when it comes to their understanding of investments and financial matters – so we begin our work at their starting point.  We never assume anything about our clients’ level of understanding.

9) While some people will actually read retirement plan or investment materials, most people don’t, regardless of how well written.

10) On-line retirement calculators and tools, while somewhat useful, have a low adoption rate. And in our view, they do not explain the built-in assumptions and risks in modeling, do not account for all of the variables that can affect someone’s future, and do not provide much interpretation – people have difficulty putting context on the results.

11) Advisors should charge, in almost all cases, a flat fee for their service.  They should be able to gauge how much time it will take to provide this level of guidance to a plan sponsor.  Charging on a percentage of assets can affect their recommendations, as will generating commissions or referral fees.

12) Almost everyone likes personal guidance when they enroll in a plan.  This event should take anywhere from 10 minutes to 25 minutes depending upon an employee’s experience and the mechanics of the enrollment process.  It will involve a quick review of the plan, an explanation of the investments and fees, an idea of the client’s experience with retirement plans and investments, the actual process of completing the enrollment, and some suggestions or recommendations on investments that make the most sense for their situation.

13) Finally, there are many people who simply have no interest in learning more about their investments and their plan.  They just want to be told what to do.  They may or may not even want to know the rational for recommendations.  However, if they can receive good guidance that does not take advantage of their situation, they could end up ok.