Have limited savings? A planner may not be necessary
Q: I am writing because I may need to make a change in my financial planning. I currently have a financial planner who charges 1.5 percent. My portfolio is a little less than $200,000.
My yearly income from Social Security and a pension is $45,000. I believe that I don't have enough in my retirement to pay 1.5 percent in charges. However, I'm not a savvy investor. I'm also very conservative. I will be 65 years old soon, and I know I need to make my money last. I also know that a savings account and CDs are too conservative. But do I need a financial planner? Should I leave my $200,000 with an adviser? Or should I move it to a different kind of investment?
I do make regular withdrawals. But recently I have tried to take less from the account. I retired early, at age 54, and lived on the IRA and my pension until I started collecting my Social Security.
My home is about 10 years old and is worth about $165,000. I still owe about $65,000 on it and refinanced it a couple of years ago to a 30-year loan to make my payments cheaper. The payment is now less than $400 a month. - J.D., by email
A: Let's start with a realistic look at what your $200,000 in savings can do for you. At a regular withdrawal rate of 4 to 5 percent, it could add $8,000 to $10,000 to your Social Security and pension income of $45,000. That's a nice amount, but it isn't a game changer. Whether the withdrawal rate is 4 or 5 percent, you'd make a bigger impact on your cash flow by paying off the existing mortgage. You'd still have a cushion of $135,000.
Financial planning is not magic, so you can't rely on it to do anything magical. The basic issue we all face is to control our spending so that it is less than our income. It's really that simple. So spending some time with your checkbook and credit card statements would be a good start on financial planning. More important, if you don't do that, everything else is meaningless.
And, by the way, financial planning and asset management aren't the same thing. Most of the people who introduce themselves as financial planners are really salespeople for financial products that manage assets.
Investing in Admiral Shares of the Vanguard Balanced Index Fund would reduce your investment expenses to 0.09 percent. This saves 1.41 percent a year in fees for you while putting your money in a fund that has generally been in the top 30 percent of comparable funds over time periods out to 15 years. It's unlikely that any adviser you find will provide advice that would lead to better results.
•Scott Burns is a principal of the Plano, Texas-based investment firm AssetBuilder Inc., a registered investment adviser. You can contact him at scott@scottburns.com.
© COPYRIGHT 2015 UNIVERSAL UCLICK