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4 Questions to Ask Your Financial Adviser

4 Questions to Ask Your Financial Adviser
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Friday, 02 February 2018 07:32 AM Current | Bio | Archive

If you haven't paid attention to the news lately, you might want to start because something scary is happening, and it will affect you if you are in your working years.

As you probably do know, most people don't qualify for pensions these days because companies have found out they are expensive to manage. With pensions, the company was responsible for taking care of retired workers for the rest of their lives, and even after they died a spouse might receive a monthly check for the rest of his or her life as well.

After 1981, 401(k)s were introduced. They allowed workers to take care of their own retirement, putting aside a portion of their income and deferring the taxes on that income. Some companies even offer a match, so people were happy to control their own destiny with what they invested.

Sounds great to save money and reduce your tax liability all at the same time, right? However, when it’s all said and done, the math may not work out that well for these future retirees. Remember, the tax on that money is deferred, not eliminated. When you retire and start taking money out of the account to live on, you’ll pay the taxes – and they will be based on an unknown tax rate of the future, not the current tax rate. Furthermore, unlike a pension, the money is not guaranteed to last the rest of your life. Also, if the stock market goes south right before you retire, even if your 401(k) money is in conservative accounts, your plans to stop working could be jeopardized.

There are other retirement vehicles, such as the Roth IRA. The premise with that is you invest with after-tax dollars and the income you receive is tax free. The bad part is, just like with a 401(k), that money is not guaranteed to last forever either.

Here is the problem. Life expectancy has grown, which means many of us may need enough money to last 20 or 30 years after we stop working. Plus, we face inflation at a rate of about 2.5 to 3% per year. That means the buying power of our money is devalued just a little more each year we are in retirement.

So the more you plan, the more you learn about how your money is being invested now, and the more you learn about other options for your investments, the better off you will be.

As a start, ask your financial adviser these four questions:

  • Can you work out what my expected net yearly income will be in retirement, factoring in my life expectancy? Don't just let them tell you that you are on track to have $3 million at retirement. That means nothing. You need to know how many years that money needs to last and what percentage (4 percent? 5 percent?) they recommend you live off each year.
  • What fees and other expenses am I paying? People often don’t realize what kinds of fee, and how much, their advisers are deducting out of their account. Look in your prospectus and examine every fee that is factored in.

  • What is my catastrophic plan? Millions of Americans are ill prepared if they have a catastrophic illness like cancer, a stroke, or a heart attack. Many turn to crowd-funding sites like Gofundme.com and hope the generosity of strangers can help them in time of need. Do not get talked into hearing that your investments will take care of you; those medical costs can eat up a lot of your retirement.
  • Are you factoring in inflation? The cost of what you buy at the grocery store – and everywhere else – is going to increase over time, just the way it always has. Let's assume a 40-year-old plans to retire in 30 years at age 70. We can use an inflation calculator to go back 30 years, put in a dollar figure and have an idea what costs will be in the future. Let's use property taxes. If that 40-year-old is paying $9,000 at the end of 2016, that would be about $19,970 when they reach age 70. At age 80, they would be paying $38,550.

As you get answers to these and other questions about retirement, you will begin to understand why we face a retirement crisis, not just in the United States, but around the world.

Mario Henry, a former National Football League player, is a financial services professional with 18 years of experience in the industry and author of "How to Hire Your House," an innovative guide on how to create a tax-free pension and sustain sufficient income through retirement. Mario also is a licensed insurance broker and a national motivational speaker. He was a wide receiver with the NFL’s New England Patriots and a scholarship football player at Rutgers University.

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The more you plan, the more you learn about how your money is being invested now, and the more you learn about other options for your investments, the better off you will be.
questions, ask, financial, adviser
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2018-32-02
Friday, 02 February 2018 07:32 AM
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