I plan to retire in a couple of years and currently pay an adviser about 1.5% to manage my savings. I don’t want to sit around crunching numbers or picking stocks in retirement, but I’d also like to pay less than I am now. What are my options? Sometimes I think I’d be better off just sticking my money under the mattress and letting nature take its course. — Mike S.
What with the anxiety of watching the stock market dip and dive these days and the hassle of finding someone affordable, competent and reputable to manage your money, I can understand why simply shoving your savings under your mattress might have, shall we say, a certain emotional appeal.
But I realize you’re not serious, as you no doubt know such a move would virtually ensure that inflation would erode the purchasing power of your nest egg over time. In fact, even investing all your dough into something simple and secure like CDs or a savings account wouldn’t be a particularly wise thing to do. The returns of an all-cash portfolio just aren’t high enough to support the level of withdrawals most retirees require.
For example, if you go to T. Rowe Price’s retirement income calculator, plug in the value of your nest egg and assume you’ll follow the 4% rule, you’ll find that the chances of your savings lasting for 30 years of retirement are only about 30% or so, if you invest all your money in cash equivalents. Unless you’ve got so much dough saved that you don’t have to worry about earning much of a return during retirement, chances are that you need to invest at least a modest portion of your nest egg in stocks.
So, assuming neither the under-the-mattress nor an all-cash solution is viable and that you don’t want to invest and manage your retirement stash on your own, what options do you have for getting professional help for less than you’re paying now?
Well, if your main objection to your current adviser is price, the first thing you might try is renegotiating your annual fee. You shouldn’t feel at all uneasy about broaching the subject of a fee reduction, nor should your adviser take umbrage at such a request. This is a business relationship.
That’s not to say that you’ll get enough of a break to convince you to stay, or any relief at all for that matter. But if you’re largely satisfied with the job this adviser is doing for you, having a frank discussion about lowering the amount you’re paying is certainly worth a try, and might save you the trouble of moving your money to a new adviser and possibly having to incur transaction charges and perhaps taxes depending on how much the new adviser re-jiggers investments held in taxable accounts.
Before you start such a discussion, though, I’d recommend that you first do a little comparison shopping to get an idea of what other advisers are charging and to get a line on new managers you might consider hiring if your current one balks at a fee cut.
Initially at least, you’ll want to be sure you’re comparing apples to apples — that is, that the price quotes you’re getting from new advisers include the same or comparable services that you’re getting from your current one. After all, you don’t want to switch advisers thinking you’re saving big bucks only to find that you’re having to spend time managing details of your finances that your old adviser took care of as part of his fee.
That said, as long as you’re contemplating a change, you might also consider whether there are services you’re currently paying for that you can do without in return for an even lower fee. And while you’re at it, ask about the fees and charges on the underlying investments the adviser plans to use. At the very least, you want to be sure the adviser is picking investments from the low-fee end of the pool, so to speak. Ideally, I think you’d want an adviser who invests, if not your entire nest egg, then at least the bulk of it in low-cost index funds and ETFs. For specifics on how to shop for an honest and competent adviser, you can check out this column.
Depending on how much human contact you feel you need, you could also look into moving your retirement savings to one of the relatively new breed of online investment firms known as robo-advisors, which employ algorithms to create diversified portfolios. The fees such firms charge are typically relatively low — generally 0.50% a year or less, plus annual fees for the underlying investments. Since most robo-advisors use low-cost index funds or ETFs, you should be able to limit all-in costs to well under 1% a year, in some cases even less than 0.5%.
Be aware, though, that the types of services robos offer can vary widely, with some, such as Betterment, Schwab Intelligent Advisory and Vanguard Personal Advisor Services, offering access to flesh-and-blood advisers and assistance in withdrawing money from retirement accounts, while others may provide a more restricted menu of help. So before you go this route, you’ll want to be sure that you’ll be able to get the services, and the attention, you require.
Finally, you may want to try the “pay for help when you need it” option. The idea is that you go to an adviser whenever you need assistance in certain areas or have specific questions, and then pay an hourly fee, say, $175 to $250 an hour. Under such an arrangement, an adviser helps you create a diversified portfolio of investments, decide when to choose Social Security, set up a sustainable system of withdrawals from your nest egg or whatever. You would then implement that advice. If other issues arise or you just want to update your planning every couple of years to make sure you’re still on track, you would hire the same adviser, or a different one, again for an hourly fee.
This requires a bit more effort on your part, so such an arrangement may not work for you. But depending on how often you need help, it could end up being the least expensive of the options I’ve outlined. One caveat: Most advisers aren’t interested in working on an ad hoc basis; they prefer charging regular annual fees. But if you go to the Garrett Planning Network site, you can search for advisers in your area who are willing to work for an hourly or flat-fee basis.
So take some time and investigate the options I’ve laid out. I’m sure that if you give this issue the serious thought it deserves, you should be able to come to an arrangement that will allow you to enjoy retirement and sleep easily at night — but not on top of your savings.