Ask the grumpies: How to find a smart fee-only financial planner, or should we just give up and do it ourselves?

CG asks:

How to find a smart fee-for-service financial planner? We (especially DH) think we are pretty smart about investing (index funds!), but we have enough money saved now that we really would like another set of eyes on our choices. The people we’ve gone to so far are hearty retired-athlete types who are probably good at relationship building in general, but not with us. Basically we have to feel like the person is truly an expert and as smart as or smarter than we are or else we won’t be getting anything out of it. Do such people exist?

Here’s Walter Updegrave’s suggestion on the CNN Money Site and on his own website.

If you have a lot of money and are thinking about asset transfer/tax avoidance, then maybe a tax attorney or CPA.  I’m not sure how to find a good one of those as we’re not in that bracket.  If you have money in stocks there’s probably things that can be done with losses and conversions etc. to save money on your annual tax bill.

You are probably best off posting on the Bogleheads forum and asking your questions direclty. It is likely that the people who truly are experts and smarter than you are at this stuff are outside of what you’re willing to pay for their services.  If you are willing to spend a large sum, then you’d be best off asking rich friends to ask their rich friends, though many of them are probably also getting shafted by people who aren’t actually doing what’s best for them.

If what you want is just about balance of assets, then asking the Bogleheads forum is going to work well.  There are lots of smart and expert people on Bogleheads who are just giving financial advice to upper income folks away for free.

In addition, there’s a wide range of acceptable even given your personal risk tolerances.  There really isn’t one optimal mix given uncertainty and our uncertainty about how certain we are.  Because you are smart and have the basics down, if you do it yourself with the help of online calculators there won’t be much that a financial advisor can add.  If you’ve exhausted your annual retirement savings and have space for taxable, here’s our thoughts on what should go where when you’re investing.

To sum:  You are probably doing just fine.  But if you have doubts, check out the Bogleheads forum.  If you still want a financial planner, read through the Updegrave links above and you might get lucky, or be prepared to spend a lot and still have a chance of not getting much out of it.

Does anybody have better advice for CG?  Have you found a financial planner you love?  How?

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Ask the grumpies: Retirement vs. college savings

Alice asks:

How do you decide at what income level to begin funding a 529? I know the mantra of ‘max out tax-advantaged retirement accounts first’, but that is a lot of money to put away (~30% of income) before starting any college savings…I assume we’ll be in the ‘squeezed’ middle on college, with too much income for aid but not enough to pay full freight outright. It seems that at least some dedicated college savings are worthwhile after 15-20% retirement savings, even if not optimal as far as taxes go…We’re assuming private or out-of-state public are in the cards, and want to avoid student debt. I’ve heard the ‘Roth contributions can be used’ chorus, but that won’t go far with current tuition rates.

TBH, if I had to do it all over again, I would max out retirement first instead of regularly contributing to 529s. Because of financial aid.  You can read about how our minds have changed on this topic via this cut of our archives, though I’m not sure we ever spelled out the history in one concise post.  (For an alternate cut, here’s the college tag.)

If you’d asked us this question when we started the blog, we’d have told you to make sure you were (getting any employer matches and) saving 15% of your income for retirement (more if you need catch-up savings– we’d have recommended you play with online retirement calculators to see whether or not you were on track) and then put a regular amount away for college with every paycheck.  We’d have told stories of how we knew people whose parents had spared no luxury (cds, cars, clothes, regular vacations to Hawaii, etc.) but then the kids couldn’t go to the fancy college they’d gotten into because their parents made too much money for decent financial aid and they had nothing saved.  And that’s not terrible advice– make sure you’re on track for retirement and then put money away for college to give your kids more options.  I don’t completely regret having taken it when the kids were younger.  Their college savings have grown at a nice clip, and it’s likely both will be on track to go to the private schools of their choice even without financial aid.

These days we’re much more attuned to the importance of College Financial Aid (Forbes Magazine has a great series on the topic– click here for the latest updates).  You can ignore this concern if you prefer to think of tuition as a donation to the school (which for us depends on the school… I’m always irritated at the fundraising letters we get from DH’s graduate alma mater given their endowment).  Will you be squeezed?  It turns out there are calculators for that, and those calculators depend a lot on how much money you have that can be tapped for college.  Formalized retirement savings (even the Roth savings) do not count for financial aid.  This Forbes article from 2017 is a little out of date, but should give you a good idea of how your income translates into financial aid (or not) for different types of schools.

To get an even better idea, you should pick a set of colleges that you could see your kid potentially attending, and spin through their financial aid calculators.  These individual aid calculators have become quite sophisticated and you can see how different colleges will treat your different levels of assets vs. income etc.  So you can run the counterfactuals to see that, for example, if my DH loses his job and makes no income, that won’t at all give us any more aid at Harvey Mudd (which is stingy for high-income folks and extremely expensive) or our local state school (which we could cash-flow), but would make a big difference at Harvard (which is generous up the income distribution).  (Here’s us doing those exercises and contemplating how much we would need to save for a set of private schools .  I just spun through the super simple Harvard calculator and for spendthrift high income folks with no savings, your kids can still get a scholarship at a joint parental income of 260K!  You can play with how hiding assets in retirement changes aid compared to having to report them like with a 529.  Note that Harvard is a bit of an outlier both in terms of generosity and how easy it is to use their calculator.)

Loans for college are not a terrible idea, especially if you can get subsidized loans.  You can put money away for retirement now and then take out loans for college that you can repay more quickly by contributing less to retirement later when the contributions will no longer count for college.  If you’re maxing out your retirement options today at 30%, then you can drop down to the match later when your children need the money.

Many people feel uncomfortable using money for purposes that they have not initially dedicated that money to.  For this set of people, putting money in a 529 is the only way to guarantee that a child will be able to go to something other than the cheapest college option.  If this feeling is acknowledged, however, and planned for in advance, I think it can be gotten around.  You can decide now what money you want to earmark now for college, put that in retirement funds instead, then take out loans and repay them later for the amount in question by putting less in retirement later and cash-flowing.

In terms of using a Roth to save for college– there are a couple of wrinkles to doing that.  Drawing money out while your child is still in school can decrease your financial aid eligibility because some of that hidden money turns into income.   Here’s another post with more details on the pros and cons of Roth IRAs for college savings.  Note that these cons can be gotten around by delaying when you use the Roth until the child is close to graduation, assuming that doing so will not affect a younger child’s financial aid eligibility.  (And the principal rather than the earnings can be withdrawn after college is complete for no penalty.)

College is not cheap, and it may be worth saving 30% or more of your income now knowing that some portion of that is being saved for college (in terms of needing to save less than 15% of your income later) even if you’re not earmarking it.

Now, I noted that today we regret not having put the $500/month/kid in our kids’ 529s (not to mention mortgage pre-payments) in our retirement options instead.  The reason for that is that we are now high income and we are maxing out our retirement options (DH also has much less space to save than he did when he was working for the university).  Any money we save over that amount cannot be hidden from colleges.  There are a number of pricey schools out there that we will not get financial aid at should DC1 get in and decide zie wants to attend.  (DC2 may be better off in terms of financial aid since DC1’s tuition and living expenses will do a good job of eating all of those assets.)  We’ve paid off our house, have replaced DH’s car, will replace mine sometime in the next two years (Financial aid starts counting 2 years before college starts), and are renovating our kitchen, but even after all of that we will have assets leftover that could have been hidden in retirement accounts.  We could in theory buy a bigger house or I could get something other than a sensible car, but I guess I’d rather donate tuition to a university than make those changes.  (#richpeopleproblems)  (Note that if our income goes up more, then we can ignore all of this because we won’t be eligible at any asset-level, but if DH loses his job and our income is halved, then all of this becomes extremely important.)  Here’s our most recent recommendation of what order to save for multiple big financial goals, and here’s our recommendation of what vehicles to use.  Finally, if you haven’t opened up a 529, here’s our thoughts on which one to pick.

Grumpy Nation, what are your experiences with saving for college?

 

Ask the grumpies: How to plan a sabbatical/faculty development leave?

Nikki asks:

How do you sabbatical? Whole year (half pay) or half year (full pay)? What planning needs to happen? How do you choose a project? How do you choose someone to work with? Go it alone? Go somewhere or stay or a mix?

Lisa adds:

+1 on this – I’m dying to sabbatical but haven’t been able to work it out yet. How do you convince the family that they can also sabbatical?

So far I’ve done two of these, both whole year at half pay.  If you can swing it financially, whole year/half pay is pretty awesome both for getting lots of research done and for being unreachable for doing service (it takes them almost a year after you get back to remember to start burdening you again).

Most of the sabbatical planning guides I’m seeing online are all about the work part.  I think they’re all from an era in which the wife took care of all of the details.

Here’s some just logistic stuff.  What planning needs to happen… wow, there’s a lot.  Note I’m assuming a domestic sabbatical– if you’re doing an international sabbatical, there’s more steps.

1. Save up financially so you can do the full year at half pay.
2. Figure out where you’re going to go (if you’re going to go) and talk to the people you need to talk to or submit applications where they need to be submitted.  The earlier you do this the better– deadlines are surprisingly early, and your professional network may need some time (sometimes even a full year!) to get things in place for you to visit.
3. Figure out what your university’s rules are.  Do you need to apply (competitive leave is also often on a schedule that doesn’t fit well with 2 above– just blindly do what you’re going to do anyway, assuming that you get the leave approved)?  When do you need to tell people?  Are there classes of yours that will need to be covered?  Will they have to hire a VAP?
4. Figure out what you’re going to do with the rest of your family– what do they need to do to come with you if they’re going to come/
5. Find a real estate agent who will take care of your house if you own a house.  You’ll probably find a renter yourself via sabbaticalhomes.com or some other academic listing, but you don’t want to have to deal with the property management etc. long distance.  Unless that’s your thing or your significant other’s thing.  IMHO, it’s worth the 10% fee to have someone else deal with repairs.  Decide if you’re going to try to rent your place furnished or unfurnished.  If unfurnished, figure out where you’re going to store your stuff.
6. Figure out where you’re going to live.  If you have kids, figure out what the school situation is going to be.  Again, if you can find something on sabbaticalhomes.com that’s likely going to be a good bet because they understand the need to live someplace for only a year and they’re more likely to have furnished places that don’t cost commercial business prices.
7. Figure out how you’re going to deal with your graduate students while you’re gone if you have any.
8. Figure out how taxes are going to work– currently under the TCAJA I believe you are not allowed to deduct work expenses (BUT check this! don’t take my word for it!), but I expect that some point in the future the tax break for unreimbursed work expenses will come back.  If it does you will want to see if there’s a time limit — for example, it used to be that if you were gone less than 365 days you could deduct your rent(!)  If that’s the case, you want to be sure you leave a couple days early.

How do you choose a project?  You don’t actually need to choose one, but you may have to write one up for the Powers that Be in order to convince them to let you go.  In that case, pick the project in your pipeline that would most benefit from getting off campus (do you need a dataset?  archives?), from collaborating with people off campus, or that sounds most impressive (are you in a book field?  do you have a grant to finish or grant proposal to write?).

How do you choose someone to work with?  Again, you don’t have to do this… work (or not) with whoever you would be working with anyway.  Now, you might be asking, how do I choose where to GO based on the people there.  You may or may not end up working with the people in question.  You want to go someplace where the people there do things you’re interested in and you can benefit from the research environment.

Like I said, if you can do it, going somewhere is the best, though some of my (male) colleagues will go multiple places (the wife takes care of all those pesky logistics for them), and it works out well.  I imagine a childless person could benefit from that too.  Going multiple places if you have to figure out a spouse and daycare/schooling etc. is kind of a non-starter.  You’ll spend all your time planning and either lose out on the work or the leisure.

How to convince the family to sabbatical?  Well, the kids and pets don’t get a choice.  They’re going because they can’t stay home alone.  It’s really just the significant other… and that’s got to work with the significant other’s work.  My DH has been really supportive– he took a year of unpaid leave and worked for a start-up for our first leave, and then was telecommuting for his second leave.  The only big change for him was dealing with taxes, which were crazy.  He’s really enjoyed spending the year someplace totally new and getting to know various paradises.  On his first leave, he did a project to find the best croissants in the greater metropolitan area that we were staying.  And there were a lot of bakeries to try.  (The secret:  cultured butter.)  He also really got to know a lot of local coffee shops.

We will have another one or two posts on sabbatical/leave coming up as there were more questions!

Grumpy Nation, do you have experiences to share with Nikki and Lisa?

Ask the grumpies: Why Leah needs to get a will

Leah asks:

How essential is a will, and how do I get over the inertia and actually get one since I suspect it’s likely really important?

If you don’t have kids, a will probably isn’t that essential unless you’re wealthy and care what happens to your money after you’re gone.  You’ll be dead and may not care if your potential heirs end up giving all your money to lawyers trying to figure out who gets what.  If that’s the case, just let probate deal with stuff.  If you’re wealthy enough to be affected by the estate tax, dying without a will means that the government will probably end up with a greater share as well, but I have a hard time feeling sorry for people in that category.

If you have kids who are not yet adults, you need a will because you need to make it clear where your kids will go (and who will take care of their money) in the event that both parents die.  This alone is the reason we got wills.  If you have kids, providing for their future care is an important responsibility and should be done ASAP.  You don’t want them to end up in the foster care system even temporarily.  It’s also important to make sure that you have named the person who will be taking care of any assets you leave them, for example, the life insurance that you have also purchased because you have minor children.  We have named DH’s brother and his wife’s family as the first place our kids would go (with their permission), but my sister would be in charge of their inheritance.  Her values about paying for education and so on are more in line with ours and she would be better able to force DH’s brother and wife to take an annual stipend for their upkeep.

It is also useful to have advance directives about what happens if you are incapacitated, though depending on what state you live in, you can do this with your doctor or using an online form rather than with your lawyer.  This was part of the full package when we did our wills.  Here’s the info for Minnesota.  Michigan allows you to file yours in a statewide registry, which is pretty cool.

How to get over the inertia?

Right now.  I mean, literally right now, contact a bunch of people in your area to ask them who they have used for a will.  Once you’ve got a name, MAKE AN APPOINTMENT.  Spring break is probably a good time to actually go in, but make that appointment now.

Now, they may send you a long form asking detailed minutia about your assets.  If your net worth is nowhere near the estate tax limit, do not let this form stop you from actually going in.  Let them know that you don’t need anything fancy because your wealth is lower than 2.7 million, the estate tax limit in Minnesota (or 11.4 million if you live in Michigan, since Michigan has no estate tax…), (actually, let them know it’s lower than 1 or 2 million if that is true), so that other stuff is irrelevant.  Then you might not need to fill out the form.

You, Leah, (and your DH) need a will because you have kids.  Having a will is the responsible thing to do.  It will be pricey (ours was ~$500, but that was a decade ago!  Though we get to update ours for free in perpetuity as part of that upfront cost), but it will be worth it for your kids if the worst possible thing happens.  It’s worth saving up for.  It’s worth taking out of your emergency fund.

Grumpeteers, how did you get your will done?  Anyone have success with online outfits like legalzoom?

Ask the grumpies: IRA with Vanguard or TIAA-CREF?

Steph asks:

I’ve managed to swing one month of actual wages this year (my salary is usually all a stipend/fellowship), which means I can put some money in an IRA! I have an existing IRA with Vanguard, but the 1 month job will also let me put money directly into an IRA at TIAA Cref. I won’t quite make enough to hit the yearly max, even pre-tax, and there’s no matching. I’m leaning Vanguard – do you have any suggestions?

Disclaimer:  We are not professional anything except academics– do your own research and/or consult actual professionals before making important monetary decisions.

You are correct to prefer Vanguard.

Vanguard has better fees for IRAs than does TIAA-Cref.  Vanguard is pretty nice to work with.  You already have an existing IRA with Vanguard, so you’ve already done the hard part of getting it set up.

The nice thing about TIAA-Cref is that they will send a person to hold your hand if you need help with something.  But this is just a basic IRA and you’ve already got one.  The TIAA-Cref option is better for people who just aren’t going to get an IRA unless they get help from someone in person.  Which isn’t you.

Finally, depending on how much money you have invested and how you have it invested (we presume low cost broad-based index funds), Vanguard has even lower fees for its admiral funds.  If putting more money in allows you to hit the threshold, then you’ll be paying an even smaller percentage in fees than you were before.

So… I don’t see any downside for keeping with Vanguard or any upside for putting an IRA into TIAA-Cref.

 

Soliciting more Ask the Grumpies!

Ask the grumpies is a feature we run almost every Friday (sometimes we post less-popular but still fascinating google questions). You ask, we answer, or we punt and ask the grumpy nation to answer. In any case, you get the benefit of not only our wisdom but the collective wisdom of the far wiser grumpy nation.

What questions do you have for us? What can we bring clarity or further confusion to? What can the grumpy nation ponder and discuss on your behalf? Ask in the comments below or email us at grumpyrumblings at gmail dot com.

Ask the grumpies: What would happen if trump was impeached?

Omdg asks:

What would happen if trump was impeached?

Here’s a step-by-step primer from cnn.