Ken quoted in MarketWatch on tax-efficient investing

We are in our mid-50s earning $225,000 a year with $1.9 million in investments and life insurance. But now what?

By Alisa Wolfson

Question: I am 55 and my wife is 54. Together we bring in a little over $225,000 in gross income. In addition to life insurance policies of $500,000 each, our current investments look something like this:

We realize if we ask five different experts, we are likely to get five somewhat different suggestions as to what could or should be changed. By experts, I mean the people we know who work with investments. This could also mean somewhat biased opinions and a vested interest by these experts/advisers. Therefore, we are seeking an unbiased review of how the current investment and retirement portfolio is and if there is any change that is warranted.

Answer: Firstly, congratulations on what appears to be robust savings. “Looking ahead to retirement, you’ve got a great start on accumulating in all three buckets – taxable, tax-deferred and tax-free accounts. Trying to keep these three roughly equal can give you a lot of flexibility down the road with cash flow and tax strategies in retirement,” says Lea Ann Knight at Better Money Decisions.

That said, “I would personally see the variable annuity as a red flag based on the percentage relative to total net worth and their age. That doesn’t mean it’s bad, but it does mean it should be reviewed by an unbiased adviser,” says certified financial planner Amir Noor at United Financial Planning Group. And for his part, Jim Hemphill, certified financial planner at TGS Financial, says it’s likely you’ve paid high commissions on several of your holdings. What’s more, the type of account you have says nothing of what it’s invested in or what could or should change. “You need a plan!” says certified financial planner Anthony Ferreira at WorthPointe Wealth Management. 

Indeed, there’s no doubt you’d benefit from having an analysis of what you’re invested in now, and an overall financial plan for going forward; the right adviser could help you with that. “Determine where you want to go, put a documented strategy in place and then track your progress. You’re great savers and you’ve made a great start,” says Hemphill. 

Where to get smart financial advice

Thus, you’re right to seek unbiased advice, and picking the right professional is key. Some advisers are fee-based — they get paid by the client and via commissions for recommending certain products – and others are fee-only. Because fee-only advisers are only paid by the client, and don’t earn commissions for pushing certain products, they are more likely to give you unbiased advice. It’s also more likely that a fee-only adviser will be a fiduciary, which means they promise to put your best interests ahead of their own. Regardless, if you work with a certified financial planner (CFP) or chartered financial analyst (CFA), those designations require advisers to act as fiduciaries.

Your best source for an unbiased review is a fiduciary, fee-only financial planner, pros tell us. 

“With the types of accounts you’ve outlined, there are significant tax-savings opportunities from having the right kinds of investments in the right kinds of accounts. This is skilled, expert-level advice, and while it’s not free, there’s an excellent chance that long-term tax savings will far outweigh the professional fees,” says certified financial planner Kenneth Robinson at Practical Financial Planning.

If you want to see how your investments are performing or if you’re saving enough for your retirement, you need to find a fee-only planner who can do a second opinion review of your portfolio, says Knight. He recommends hiring an adviser who works on an hourly or per-project basis, just to spot check what the other adviser is already doing. “Maybe you need a different amount or type of life insurance, maybe you need to be more or less aggressive in your portfolio to meet your long term goals,” says Knight.

To get started, visit Garrett Planning Network or the Fee-Only Network as both of these sites allow you to search for planners by fee and engagement type. “The most important question is the one you haven’t asked. What do you and your wife want from your wealth? What are your priorities, goals and values? A good fee-based adviser can help you to get clarity on that set of questions, which will provide the right framework to think about your portfolio,” says Hemphill.