Episode 87: When to Hire a Financial Advisor and Managing Retirement Accounts: Listener Qs Answered
In this episode of Accessible Finance for Retirement, Eric and Rachael Johns. In this episode, we address listener questions covering crucial topics like the right time to hire a financial advisor, effective management of 401Ks and Roth IRAs, and navigating required minimum distributions (RMDs). Additionally, we discuss the timing of IRA rollovers and estimated tax payments. Gain expert insights into financial planning for retirement, including comprehensive advice on managing your investments and planning your decumulation strategy.
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Read the Transcript
Episode 87
Welcome to episode 87 of Accessible Finance for Retirement. I'm Eric Johns. And I'm Rachel Johns. Let's do this. Uh, ooh. That's a new one. I did, I changed it up. You did? I was feeling it. Impressive. Yeah. Um, so we're gonna continue along with our segment of, uh, listener questions and things that I've kind of come across, and we are just gonna surprise you with them.
Great. Let's do that. As he likes to say. Yes ma'am. All right. Um, so the first question that we have is from somebody who says When is the right time to hire a financial advisor? We are approximately five years out. Everything [00:01:00] is pretty much in tax deferred 4 0 1 Ks. I'm trying to build some flexibility now with Roth and brokerage.
Does it make sense to hire someone now or wait until I'm closer to retirement? Fantastic question. We get this question quite a bit. Yeah. Um, the short answer is. It, it depends on how much value they can provide, right? That's, that's, that's gonna be the, that's gonna be the succinct answer, but that doesn't really help you.
So in this spot, you're essentially articulating that you're about to do some Roth conversions. You want to change from your tax deferred to tax free. Right? Or at least some of your, some of your buckets. You wanna fill up the tax free bucket. It doesn't sound like they have like any, maybe not anything in a Roth.
Yeah. It sounds like it's just a very new tool. So first we have to tool I, I think the answer to their specific question, I know they didn't say. Should I specifically hire a financial advisor? But, and they, and they ask generally when. Mm-hmm. I guess the win is when you no longer feel comfortable managing your own situation and, or you're just looking for, you know, a second set of eyes.
There are a number of reasons that people do it. You know, I, I, I [00:02:00] jokingly say some people are just, I probably could do this all. Yeah. Or I, they, they feel like they could do this all, but they don't want to. Right. They don't want to devote that kind of time. Yes. Others just, you know what, professional asset management, others want the whole picture.
Right. I imagine it kind of like quadrants where, you know, your ex might. Measure your desire to do this and your why might measure your capacity to do it. That's a good, that's, I like that. Thank you, um, better than my answer, but a lot math teacher here. Um, but I think that in three of the four quadrants, you are likely gonna benefit from taking advantage of, um, financial planners.
Guidance. Mm-hmm. And expertise. Um, of course that last quadrant being the I can and want to do this, then you're probably not even looking at forums where people are asking about Right. Generally what I should find a financial advisor. Generally speaking, there's a lot that's gonna be [00:03:00] going on though to where you probably want a professional second set of eyes.
Even if you are willing and able to do it yourself. It, it's almost certainly worth like a one time planning fee to. Verify that you actually do know as much as you do. Uh, a lot of financial, personal finance. You don't know what you don't know. Right. There's, I was just gonna say that there, the breadth of tax laws.
Yeah. And, you know, investment options alone, much less 401k plans and everything else. Correct. So one of the things that I wanted to mention to this spec or speak to in this specific question is you have to review your 401k plan to see if you're even able to do in plan rollovers or in plan distributions.
Right. Because you need to be able to do one of those two things. To get the funds into a tax free account unless your 401k plan has a Roth option. All of these things you can find. Yeah, but they're notoriously pretty difficult, tedious. Well, and in addition to the static rules that exist. You also have an ever changing political landscape that has [00:04:00] led to things that people may not be hyper aware of unless they're either professionally in the business or spend all of their free time researching this stuff.
Correct. So if you feel you're in that fourth quadrant where you have the capacity and the desire, um. The fortunate thing is that, you know, financial planners come in all shapes and sizes. Mm-hmm. And there are many who are willing to work with people who, like Eric said, just want another set of eyes or a one time plan.
Yeah. Or a view of where you're at. I would also say that Decumulation tends to be a little bit more complex and interesting to me because of the tax consequences Yes. Than accumulation. What I mean by that is when we're starting, when you're, you know, you're graduating college in your twenties. And you're embarking on your first job or second job or whatever you're stuffing money in a 401k, you've selected your allocation.
You might have a target retirement 2060 or whatever, and um, and, and it's off in the horizon and you're just chugging along, right? Like you're, you're spending your W2, you're saving [00:05:00] yes. The maximum, your 401k and you're happy, right? And then there's a ton of options when it comes to Medicare social security.
Um, how are we gonna convert, how are we gonna move these assets from a 401k or a tax deferred account to a tax free account? So that actually leads me to another question that mm-hmm. I had further down that I'm just gonna jump to. Um, someone had said, you know, currently I have, uh, fidelity for my investments.
Okay. And, uh, they were inquiring as to who best to work with in order to actually plan out. Which investments to use first and the timing of retirement withdrawals. And their first thought was an estate planner is who they should work with. That is, yeah. Interesting. So they said, I may have to retire earlier than expected and wanna ensure I'm managing my IRA 401k, et cetera properly.
And I think this is a case of somebody conflating, [00:06:00] um, a mm-hmm. Financial planner. And a Fidelity investment advisor. Right. Okay. Like if you have somebody working with you at Fidelity, Edward Jones, one of these big places, and you've worked with them for a while, they're saying they're a financial planner and their expertise or the conversations have only have always only been in the investment, the investment.
Side of things and haven't really talked retirement planning or anything like that. Okay. I think it's easy to assume that that is what financial planners do, that they invest. And you know, we've interacted with many people that believe that even if that's not the only thing you do, it's 90% of what you do because that's where the big bucks are.
That's where you can, you know, really make a difference in somebody's plan. Mm-hmm. And we've talked a lot about how that in fact is not really the case. Um, but I found it really interesting that their first instinct was. An estate planner. Um, thoughts? Yeah. [00:07:00] So, uh, when I hear estate planner, I'm thinking an estate attorney, to be honest.
Yes, me too. Um, but I'm certainly not thinking a financial, usually just nomenclature is just. All over the place in this industry, you can kind of call yourself whatever you want. There aren't, there's not a ton of rules around it. You don't have to have a CFP to call yourself a financial planner. You can, you can say that if you didn't even graduate high school, right?
You can call yourself whatever you want. Point is, uh, financial planner, financial advisor are. Just ubiquitous. They're widely used by, you know, potentially like commission only insurance salespeople. Mm-hmm. And just people that you would think, like if I hear a financial advisor, the idea, the implication there is that you're going to receive advice on what you should do and what decisions you ought to make, rather than just, Hey, we're gonna collect an a u fee and we're gonna just put your money in some, some funds.
So, and this is where knowledge of the designations themselves is very important. Sure. Google is a really good friend here. You can at least. Search the letters behind their name and see what they mean and if they're useful for you. Right. I like the way, the way I'm, I, I like to describe it now, [00:08:00] is the, the kids this way and he calls, um, instead of calling ourselves financial advisors or financial planners, he calls it financial advisors.
Because we are in the business of giving financial advice. You do say that, right? So he's also my guy. Yeah. Love him. Michael Kit's. Great dude. Um, anyway, I should take the picture of you guys together and instead the podcast. I love that picture. I know you do. You should. I will. That would be great. But just to, to, to speak to the question a little bit more.
It's gonna be rough when you're speaking with anybody at Fidelity to get the entire picture because they're gonna be limited in scope, right? Like they're, my our understanding is that they strictly cannot give tax advice, correct? They're not able to. They will tell you as much if you ask them directly.
They'll say they can provide tax education, but they cannot provide tax advice. What that looks like. Just it, it will fall short of what you would get if you worked with a financial planner. That was all that was doing tax planning. Right. You're not gonna get something as comprehensive as you may believe you're getting.
Right. But to, to the question though, we we're talking about decumulation, right? Yep. And how to unwind [00:09:00] accounts and what to spin down first. Mm-hmm. And the thought was, let's go to an estate planner. I'm thinking a state attorney that is 100% not what they will do. Like an estate attorney absolutely will not talk to you in any meaningful capacity about your investment philosophies, maybe.
Uh, maybe you'll hear something about equities or, um, fixed income, right? Because they might be talking about like an IDGT and they'll talk about the assets that are most likely to appreciate. Mm-hmm. And they will say maybe that equities are gonna be, think more likely to appreciate the fixed income, but they are terrified, I think.
I don't think they're gonna say that at all. I they dont really want you to hold their feet to the fire there. I think they are going to avoid speaking beyond their expertise. Like the pla I mean, that is drilled into you. It's like legal, yeah, legal education. The ones, the, the state attorneys that I've interacted with have been incredibly hesitant to do so.
Yeah, they'll, they'll be very different when it comes to that. They'll say explicit. They'll say things like, Hey, this is where you might want your highly appreciative. Or your assets that are most likely to appreciate, right? They're not gonna tell you what's going on on fine, but they're not gonna [00:10:00] tell you what that ticker is.
No, they're not gonna say VOL goes here when we're talk, exactly when we're talking. Like when this person says an estate planner. Right? I think you and I both in immediately went to estate attorney because estate planner's not really nomenclature that we would hear, right? Mm-hmm. Now there are. Financial planners that specialize in estates are estate planning and retirement planning.
Right, right. Um, which is great. Um, but it's gonna be very important if you're working with one person on your investment advice and you're trying to work with a holistic planner on a very specific area that I, it it becomes complicated for them to be able to give best advice if they're not able to.
Right. When we're talking about financial planning, what you wanna do is you wanna go to a, the, the planner, the, the financial advisor is gonna be the quarterback, right? Mm-hmm. And then that person will bring in other experts as needed. Right? So if you have a very complicated college planning scenario where you're unwinding [00:11:00] college loans mm-hmm.
They might bring in a college loan consultant Yeah. And, and, and, and interface with them so that you're, you know, getting the most. Uh, accurate and comprehensive up to date. Yeah. Right. Exactly. The laws are, boy, those talking about shifted quickly, landscape changing. Boy is that one just absolutely under a Well, and that's what's hard.
I think that the, the best thing, like we were just talking about how if you're trying to DIY something, um, you don't know what you don't know. The role of a financial advisor or a professional in this arena is to be acutely aware of what they don't know. Mm-hmm. And to. Say, okay. Like I, my expertise is in these areas, right?
If I have a client whose needs fall outside of them, I have a professional network that I can tap into to get, you know, the best, most complete advice in that arena, right? So I do think that you should start with a comprehensive planner or advisor, right? In this case, as I would say, go to the financial advisor, ask them for their views, right?
[00:12:00] They're gonna. They're gonna do kind of a comprehensive analysis. Mm-hmm. And give it to you. And then part of that comprehensive analysis should be how you should unwind your assets. Where they would think about selling first, how they would think about the withdrawal strategy in general. Because typically just to let you know, it's not going to be an all or nothing.
You don't sell all of stock A and none of stock B. It's usually gonna be pro ratta. It might be rebalancing, like some people want to create income streams. You get to choose how you do these things. Right? So there are a number of, of strategies and philosophies. I would say rebalancing probably takes the cake.
Yeah. So you'll have, like, what that means is you'll have, you know, a target allocation, like you wanna be 60 40. So if stocks go up to 70, right. And now you're 70 30. Right. Because it has to add up to a hundred. Mm-hmm. Now you're taking the stocks out. So in that specific situation, you're taking the stocks out, but it's not like a.
Uh, usually financial advisors won't be telling you, oh, well, we're gonna sell Tesla today, but not Apple and non Nvidia, because we're really high on Apple and Nvidia, but not so much Tesla. That's not going to be said because it's likely that they'll be in globally [00:13:00] diversified index funds. Right? So when it comes time to sell equities, it's going to be the portion of the equities that are appreciating, right?
They're gonna have, you know. 64% us, 36% international or something along those lines. And then if US moves up within the equity component, if the US is higher, then that's what's being sold more. Mm-hmm. And then whether it's small cap, large cap, right? Like there's all kinds of like granularity you can get into there, but it's usually not to the individual stock level.
That's my point. I mean, and if, if you want it to be at the individual stock level, there are certainly people you can find who will do that. Right. But it's like we discussed, there's definitely a wide array of, um. Practitioners. Yes. But we would say that academia and peer reviewed journal research indicates that that is not a viable strategy over time.
And so we are not going to implement it if you work with us. Correct. Right. That would not be our recommendation. Correct. But absolutely not. Say I, I would actually tell you to run if you go to an advisor or I would, they're not gonna call themselves advisors. Because no advisor in my mind would ever recommend [00:14:00] individual stocks.
They're, they're their podcast. Unless they're doing a core satellite strategy. Yeah, exactly. They're not, they're not Michael Kit's fans like I am. Okay. Um, no. True Scotsman. Right. Rachel, next question. So number three. Um, I've been reading a lot about RMDs and IRA rollovers. Okay. Just asking for general thoughts here at 67, does it make sense to consider shifting from an IRA to a Roth?
I am recently semi-retired. Thanks. Fantastic question that we would need tons more information Exactly. To answer accurately. The short answer is you almost certainly want to shift, but the magnitude and the quantification is going to be not so much incredibly variable, right? Like we have no idea what your taxable tax deferred account looks like.
Lemme just put a little bit of, I guess, color around the discussion, right? So to frame it, if you have more. Assets in your tax deferred account, if you had, let's say, 10 million in your tax deferred account mm-hmm. You [00:15:00] may well want to be converting right now to avoid enormous RMDs. You may well want to be converting up to maybe the top of the 24% bracket.
Mm-hmm. Right. Maybe even the 32. Okay. But if you have, I don't know, $500,000 in tax deferred assets and you're living mostly on social security and other fixed income sources like pension or whatever. Then it's highly unlikely that you want to convert all of it. You might just fill up the 12 and be content.
You may fill up the 12 and some of the 22. Yeah. But you can math it all out to see what makes the most sense for you. Right, and that's what's tricky too. I think that in addition to looking at what your current position is, you're also looking not at years in a vacuum, right? You're looking long term.
Absolutely. At the lifetime tax rates that you're gonna have and what your expected. Tax rate's gonna be later on, and then being able to, like, you could easily fall into the Yes, it makes sense to convert to a Roth. That doesn't mean take all of your money out this year and put it into a [00:16:00] Roth, so, right.
Please don't do that. Right. Again, we've seen that it's not great. Don't do it. It's really, it's really bad. Resist the urge, I can't do it. Um, but if you're working with a planner, um, they should be able to quantify over a number of years, right? Like. How much to, to convert or what the options are. Like they may say like, option A is to convert up to here, right?
Here are the pros, here are the cons. Option B is to convert up to here, here are the pros, here are the cons. And, um, then at least kind of ballpark the next few years, if it's something that, um, they're gonna do in, you're gonna do in a laddered way. Um, so it's not as simple as a yes or no. Question. Yeah, that's what Rachel said is exactly the right way to think about it.
Um, the, a couple things that I would say, just general rules. Mm-hmm. Um, the more money you have in tax deferred, generally the larger the tax bracket you're gonna wanna convert to. Mm-hmm. If you have heirs or a legacy that you're trying to leave, the more likely you are to wanna convert [00:17:00] funds to a Roth.
There's, even for your own personal, you know, uh, tax savings over your own lifetime, even if you have no heirs, there's probably a number that is not zero, not zero number. That you're going to wanna convert, right? It's just gonna be on the lower end. And then the more interested you are in your legacy, the higher end, the higher earners, the, the higher earning potential, and the higher earning, the higher earnings currently that your he have.
Mm-hmm. Also is a factor, right? If they're making a ton more money, then it's valuable for you to pay in the 12%. If your heirs might be paying in at 37%, 35% because they're doctors or lawyers or whatever. You know, they're highly successful, you know, or highly paid, I guess I should say. Let's not, yeah. Don't complain too.
Let Right. Um, but, and it's interesting 'cause this person says they're semi-retired, so you would need to know exactly what is their earning, what are their earnings like, exactly. How much space do they have in the 12 or 22? Right. What their space, and we don't know if there's anything currently in a Roth, do they have nothing in a Roth?
In which case. You know, we've talked about the importance of the three buckets. If you don't have Right. Tax diversification, if you don't have any. [00:18:00] Exactly. So there are factors that go beyond just the numbers as well, just for best practice purposes as, as well here. Um, all right, Eric, question number four is a pretty supposed straightforward one.
Okay. I like these. Um, that's good. So this person missed. The due date Uhhuh, which was September 15th for estimated taxes. Okay. And wants to know if they can pay it now or if they have to wait until the next due date, the next quarter. Oh, you can certainly pay it now. Mm-hmm. Um, it's just gonna be, it's just gonna be late by the amount of days that you paid it.
I would also say to explore withholding, because that will always count as January 1st for the year that it's withheld. Right. So what I'm saying right there is like if they're W2, you're saying, or if they have an RMD, you can also withhold from an RM D. Mm-hmm. Right? So you can take a really, you can withhold from an RMD or you can take a distribution from your retirement account.
As long as you're 59 and a half and you, it's a qualified distribution, you can withhold from those. Right? So if you have a. [00:19:00] Tax deferred account, you can withdraw from that and withhold up to like 99 point, some high number percentage of the withdrawal or of the distribution for taxes. Like you can just send it essentially straight to the federal government.
Yeah. So like I can go take a hundred thousand dollars out, give, write myself a check for like, you know, 10 bucks, nine bucks, and then the rest of it can go straight to the federal government. Does that make sense? Yeah, that's perfect. It's 990 bucks. You know, the post was made on the 17th, the due date was the 15th, so.
The person is currently two days out. Right. But if you are waiting, like if you're not, you know, moving forward with your strategy of withholding mm-hmm. And then you wait until the next hoarder, you've taken something that would've been two days Right. And made it 90 ish. Yeah. Right. Three months. Exactly.
Right. To be fair, the um, the. Uh, what is it? A FRI think it is applicable federal rate is the rate that they use to charge interest. So that's the only thing that you'll be paying, and it's only on the portion that would've been due. [00:20:00] So at most you're paying what, like 90 over the 360 of, so like a quarter, right?
Of the, um, of the taxes that were owed in that quarter, right? So if your payment's a thousand dollars, like you're just paying interest on the, uh, the two 50, right? Mm-hmm. Yep. So not bad. It's not terrible, but I understand the desire to reduce fees and penalties and interest For sure. And if somebody that's that hyper aware of it, you know, is someone who's meticulously keeping track of the re.
Exactly. Absolutely. So nothing wrong with that. That's a great way to B. Love it. It's your a plus student who's worried they got a name minus, right. But yeah, look for withholdings. I like withholdings. That's good. Do at the end of the year. Yeah. Avoid loan, the government government money. I was gonna say, then you can maximize the returns on your money for Yeah.
If you really wanna min-max you withhold in the fourth quarter or closer to December. Right. And then accounts for January, you were able to earn interest on those funds the whole year. Yeah. And then you pay it at the very end. Yeah. I like it. Alright. Well Eric, that wraps up our questions [00:21:00] for today. I have a whole slew that we are gonna continue with in our next few segments.
Excellent. I'm excited. All right. Until next time. Thanks guys.
