Why Should You Choose a Retirement Fiduciary?
We believe that whenever you are dealing with your finances—especially the money you have worked so hard all of your life to put away—you should be working with a fiduciary. Choosing to work with a licensed fiduciary, especially one who specializes in being a retirement fiduciary, could make a huge impact on the success of your retirement, because they are required to put your best interests ahead of their own company’s interests.
We’ve covered the ways you can identify whether or not an advisor is a fiduciary in other articles, but here’s a quick summary—1) they must have a Series 65 license, 2) their firm is structured as a fee-only RIA (Registered Investment Advisor), and 3) they are independent of any particular company which designs or sells financial products under their own brand, i.e., nobody tells them what they can or cannot sell to the client.
Now let’s take a look at some of the ways a retirement fiduciary could help protect you.
What a Retirement Fiduciary Should Never Recommend.
Because Decker Retirement Planning, Inc. has focused almost exclusively on retirement for decades, we can point out three products in particular that we believe a retirement fiduciary should never recommend:
- Variable annuities.
- Non-traded REITs.
- C-share mutual funds.
- Take variable annuities, for instance. We say this product is sold, not purchased, because it is so heavy with commissions and fees. A broker (usually with a Series 7 securities license, not a Series 65) will make around 8% commission right off the bat when he sells you a variable annuity, and then continue to get paid every year you have the policy. Not only that, but the insurance company and the mutual fund company that provided the policy get paid, too. You’re talking about an average of 5-7% getting taken off the top of your investment each year.
With variable annuities, when the markets are up, you’re obviously making gains only on money that isn’t gobbled up by fees. But when markets go down, you’re losing 5-7% on top of the market loss. In other words, variable annuities underperform on the upside and lose more on the downside. No retirement fiduciary could in good conscience recommend a variable annuity in our view.
- Non-traded REITs (real estate investment trusts) are next on our list. Clients of bankers and brokers have no idea that they’re paying commissions of 10, 12, or even 15% on these investments. And they’re non-tradable—they’re not liquid. They should never be recommended for retirees as far as we are concerned, because what happens if real estate goes down—especially like it did in 2008? That’s right, you will lose a ton of money—and you can’t get out.
- Finally, there is what we believe to be the poster child of non-fiduciary, non-transparent commissions: C-share mutual funds. Even if you specifically tell a broker or banker that you don’t want a front-end or back-end-loaded fund, they might trot out a C-share mutual fund. Because what they are not required to disclose is that they could get paid up to 1% every year, depending on the product. This non-disclosed commission is so questionable that TD Ameritrade, Schwab, and Fidelity won’t even allow C-share mutual funds on their trading platforms!
Brian Decker: “When it comes to your retirement, chances are you’re taking too much risk. To test this, do yourself a favor and give us a call. We love to compare and contrast portfolios—we’ll show you the fees and performance of a portfolio created by a broker or banker side-by-side with the fees and performance of a portfolio built by a retirement fiduciary.”
The Importance of the Retirement Distribution Plan.
The first thing your retirement fiduciary—Decker Retirement Planning, Inc.—will do is create something called a retirement distribution plan for you. This plan is completely unlike the pie chart you’ll get from a broker with your investment assets allocated in different colors. The retirement distribution plans created by Decker Retirement Planning, Inc. map out the rest of your financial life up to age 100.
We do this primarily so that you will have more confidence that you won’t run out of money in your lifetime. We use math and run realistic numbers. As a retirement fiduciary, we endeavor to be as thorough as possible. We want you to be able to visually see, mathematically, how much you can spend for the rest of your life.
Brian Decker: “One of retirees’ top fears is running out of money. We have found that one of the best ways to eliminate that fear is to plan.”
On one side of the retirement distribution plan spreadsheet are all the sources of retirement income, including income from assets, pensions, and rental income. Social Security benefits are also added for each person—and this is important—the optimized filing techniques will be analyzed based on your unique situation. After we add up your income, we’ll calculate your anticipated effective tax rate. (Not the tax bracket, the effective tax rate.) We subtract this from your gross income.
Then we include a cost of living adjustment, adding 3% every year to protect against rising prices for things like food and energy costs. That is how we arrive at your net spendable income, broken out by month. This is what we compare to your budget so that you can see what you actually have to spend every month, and what you might have left over.
Wealth Transfer—What’s Left Over from the Retirement Distribution Plan.
Do you want your heirs to receive all your assets today, at death, or a combination? At Decker Retirement Planning, Inc., we recommend a combination, so that you can enjoy creating memories with your children and grandchildren while you’re here. That’s the beauty of planning—your retirement distribution plan will show you what you might have left over at any point in time. If you have extra, you can spend it on something you can enjoy with your family, like a special vacation or family reunion.
Importantly, it will also show you what you don’t have left over. We like to use an analogy based on something that’s not intuitive—putting an oxygen mask on yourself first and child second in an airplane emergency. It just doesn’t seem right to take care of your kids after taking care of yourself. We liken this to not loaning money to your children that you can’t afford, or cosigning for their loans or bailing them out of every financial emergency. Because too much of a “bleeding heart” for your kids and grandkids can lead to financial disaster if you don’t follow a retirement distribution plan created by a retirement fiduciary to know what you can actually afford.
At Decker Retirement Planning, Inc., we’ve seen first-hand how this can devastate a retirement. For instance, one couple probably in their 70s came in to see us with almost all their assets gone towards helping their children. They basically had no retirement savings left. They had no income, no savings, no emergency funds and only one home left that they would be required to sell to make it through the rest of their lives. We don’t want this to happen to you. You can reach us at 855-425-4566.
Brian Decker: “Of course you can help your children when you can afford to. But at the same time, love them enough to let them go through some things on their own. They may struggle during their early 20s and maybe through their 30s, but that may help them learn the life lessons of finance and savings and frugality and investing and doing without. Call us and let’s create a retirement distribution plan so you can see your own situation on paper. We want to help you make the right financial decisions.”
