We can keep a lot more of what we earn by paying attention to how and when we buy and sell and how we structure our investments for our retirement years and for our chosen heirs. A tax-savvy elder or estate planning lawyer can help.
Inflation and the Rising Cost of Living
But no one can escape the “silent tax”: inflation. Inflation, the loss of purchasing power and, in particular, the rising costs of medical care and medical insurance greatly affect our lives during retirement. Tom’s Inflation calculator at http://www.calculateforfree.com/online49.html can be used to project inflation, the rising cost of living and the even faster rising cost of medical care.
Inflation is calculated at a different rate for Social Security. A good place to start exploring how to draw benefits is www.maximizemysocialsecurity.com. Unlike most sites, it adjusts for the 21% drop expected in 2033.
We must arrange our investments to beat these costs and compensate for the drop in Social Security as well as to minimize taxes. But investing itself costs money. Most of the costs are hidden. Some can be controlled. Mutual fund fees and expenses can be calculated and compared at http://www.sec.gov/investor/tools.shtml and at www.finra.org/fundanalyzer. The first site also has calculators for target date retirement funds and college savings, a risk meter and a comparison of tax-free and taxable bond yields. Many finance calculators can be found at http://www.martindalecenter.com/Calculators.html.
Timing may be everything. It is also unpredictable. We do not know when we will need money for a major medical expense or to help support a child who has lost a job or is going through a divorce.
All too often we also do not know what we are paying to invest.
The Middle Man
Investment Managers. Sometimes called investment advisers, investment managers usually charge 1% per year of the assets they manage. Some charge 1 ½% or 2%. They are retailers. Wholesalers, to whom part of this management fee is paid, are affiliated with an intermediary which is affiliated with a brokerage house. The brokerage house or broker-dealer does the actual buying and selling. It is easy to lose money while the investment manager and other intermediaries profit. Before hiring an investment manager, check the Securities and Exchange Commission Adviser Public Disclosure Database at www.adviserinfo.sec.gov. Investment managers managing smaller amounts of money must only register with the state www.nasaa.org.
Brokers. When we buy a house, we pay a real estate broker 6%. Without knowing it, we could pay an annuity salesman or broker 7-14%; a life insurance or long-term care insurance broker, 8-20%. Insurance salesmen may call themselves “advisors” but industry literature calls them “producers.” Their registration and disciplinary history can be checked at www.naic.org. Texas ranks 50th out of 51 in insurance regulation.
There are online “discount brokers” of stocks and bonds, which charge a flat fee, and “full service” brokers, which give advice and are paid a commission. We never know exactly how or how much a stock or bond broker is paid. Even major investment companies (mutual fund houses) have been fooled for years. A good clue to the higher rates paid by individual investors is that the difference between the offered and the bid price for municipal bonds, 45% of which are held by individuals, is about twice that for corporate bonds. You can check stock and bond broker registration and disciplinary history at www.finra.org.
Financial Planners and Advisers. Knowledge and integrity vary widely in this unregulated industry. If you want to be a financial planner in Texas, print a business card.
The closest thing to a licensed financial planner is a privately Certified Financial Planner, a CFP. 9% of Certified Financial Planners manage portfolios. 26% offer tax and retirement consulting. The Certified Financial Planning Board estimates that about 70% of financial planners earn at least some of their income through commissions.
Before paying for any investment advice, ask:
How is he getting paid?
Does she understand – and respect—what I want and need?
What do those credentials mean?
A certificate notes course completion. Certification refers to a body of knowledge. A license defines a scope of practice.
The Consumer Finance Protection Bureau has found over 50 “alphabet soup” financial service designations. Here are a few.
|CASL||Chartered Advisor for Senior Living||45 hours|
|CECA||Certified Elder Care Advisors||35-45 hours|
|CLTC/A||Certified Long Term Care Advisor||2 days|
|CSA||Certified Senior Advisor||3 1/2 days|
|CSS||Certified Senior Specialist||2-4 weeks|
|LTCGS||Long Term Care Group Specialist||45+ hours|
|LTCIS||Long Term Care Insurance Specialist||average 2-4 days|
|LTCP||Long Term Care Professional||2 1/2 days|
A May 2015 Government Accounting Office study found that 57% of Americans age 65 to 74 rely on Social Security alone. But dreams of a “silver tsunami” attracts all sorts of creatures.
It’s your money – and your life.