This isn’t an additional phase in your retirement path, but many seek what they call a second opinion, so we included it as a separate phase. We believe everyone has a financial and retirement plan in place. At its core, your current plan is the summary of what you save, spend (and plan to spend), invest (current and future), and protect.
Some seek a second opinion after having a plan created by another financial professional. In this case, the advisor often “sells” products. Given the potential bias, you may find value in getting a second opinion from someone who is not “selling you something.”
You may have been your own planner. Throughout the accumulation phase, you did what you believed was correct (and you were probably right). You saved, invested in your retirement plan, but now you’ve reached the point where you think it would be beneficial to have someone review your progress.
You may be getting closer to retirement and want some guidance transitioning from accumulation to distribution. Either way, we often hear there is value in seeing the numbers displayed and discussed without the conflict of emotions (yours).
Common themes/questions when seeking a Second Opinion
You typically have a good understanding of investments. You’ve likely run a financial calculator (or two). You have a pretty good idea of where you are and if you’ll likely achieve your goals. Given your knowledge base, we spend more time on specific details rather than the big picture.
Second Opinions include discussions about:
- Taxes. During the accumulation phase, a common goal is to minimize current taxes. We look at taxes from a relative standpoint rather than an absolute. If you would pay less in taxes today (average rate) than you would in the future, we might consider contributing or converting into a Roth IRA. This would likely increase your current tax obligation. You wouldn’t increase taxes today unless you could see a future benefit. As we project future taxes, we compare today’s obligation with a future obligation. From there, we have informed discussions. The emotional side will rarely want to increase taxes today.
- Cash flow. If you have expected upcoming cash needs for retirement spending, college funding or a large purchase, we consider from which account the funds should come from. Then we allocate investments with cash flows (and taxes) in mind. For example, if your desired allocation is 60% stocks and 40% bonds; we shouldn’t simply replicate each account to hold the same allocation. Cash flows and taxes should impact with asset classes are held in which accounts. Restrictions on accounts such as 401k fund options should also be considered.
- Reviewing projections. Many begin this process with a belief they will “be OK.” Many of those same people are surprised by how “OK” they really are. When you see real numbers, you will likely ask additional questions and consider new goals. Seeing “your numbers” makes your plan “real.”
- Reviewing questions. With the amount of information available on the internet and via other sources, it is not surprising you might have questions. You may question whether you should contribute to a Roth IRA or a Traditional IRA. If your employer offers a Roth 401k option, should you use it? You might question how much insurance you should have. Should it be term, employer provided or another option? You will have no problem finding “generic advice.” The point of completing your financial plan is to understand how and when generic advice fits and when it doesn’t…given the specifics of your situation.
- Reviewing previous decisions. Some advisors want you to liquidate everything and follow only their advice. If charging a percentage of assets, you might quickly recognize the conflict of interest. For example, you may have purchased an annuity before you realized how it fit your plan. Rather than liquidate without consideration, we’ll review the options and riders of that specific annuity and make an informed decision based on your goals. Similar discussions often occur when positions have unrealized gains and when we review life insurance. You shouldn’t blindly liquidate or transition without an informed review and consideration.
- Playing devil’s advocate. This is a fun role for us. This is your plan, not ours. Throughout the planning process, we often play devil’s advocate even when we agree with your decision. We want to be sure you’ve considered the various options before making a final decision.
Why you should get a second opinion regarding your financial/retirement plan
We often tell people the two best reasons to hire a financial planner is the removal of emotion and experience. You might notice the reasons do not include buying the “best” investment or insurance product. We might add simplicity as a third benefit.
You will always be more emotionally involved in your plan than we are. We’re able to step back and look at numbers. If you question the projected outcome, we will likely ask…” which input is wrong?” This becomes an interesting conversation because we can often agree on the inputs. We know what you have in your accounts today. We have a good idea (and you control) how much you will add to various accounts. You know what you spend today. We need to project a future return which is an unknown, but if we have long time horizon, we can use a historic average (and usually decrease it to be conservative). If we agree on the inputs, the rest is simple math. Sometimes, it takes a while to feel comfortable with the plan’s output…especially when it projects an outcome beyond what was expected (we call this an upside fail).
You will hopefully only complete one plan. We have the benefit of completing hundreds of plans. We’ve witnessed what works and what created surprises. We’ll share those stories. We’ll discuss how that scenario may apply to your plan and discuss ways to hopefully repeat the good surprises and avoid the bad ones.
Finally, you should have a clear road map of what steps to take as you move through the phases of your plan. A second opinion can provide that road map.
If you question whether this is a good investment for you, we recommend interviewing us and other financial planners. Like most financial planners, we do not charge a fee for this meeting. Take time to understand the differences and decide what is best for you.