Dear Liz: I know you advocate paid financial planners, but is it worth paying someone 1-1.5% a year to “manage” your accounts? Especially if the accounts are simple enough, like a pension and a 401 (k)? Fees of 1.5% seem high to me.
Reply: It depends on what you are getting for your money. If all you do is use investment management – someone to pick your investments and rebalance them from time to time based on a target asset allocation – then even 1% of your portfolio’s value is probably too high.
You can find automated investment services, called robo-advisers, which can manage your investments for an amount of around 0.25%. If you have a good 401 (k) plan, you could have access to target date funds that manage your investments for even less.
If you get full financial planning, however, then 1% is pretty standard. The planner would start by creating a financial plan with reviews of your cash flow, tax situation, insurance coverage, savings goals, and estate plans and offer recommendations or referrals.
After that, the planner will meet with you regularly to update the plan and be available for any questions you may have. As you approach retirement, the planner can help you make critical decisions about when to apply for Social Security, what health insurance coverage to choose, and how to use your savings.
However, you have other options than paying a fee based on your investments. You can find financial planners who bill by the hour at Garrett Financial Planning and those who charge monthly fees at XY Planning Network.
Should you sell or bequeath a house?
Dear Liz: I am 80 years old. I moved out of my condo several years ago and am renting out my condo for income. It is valued at $ 350,000. I am writing my will and I want to share the proceeds of the condominium between three people. Would it be better to ask the executor to sell the property and divide the proceeds in three ways, or sell the condo now and put $ 100,000 in three separate accounts, naming each person a beneficiary on each account? ? It would be nice to have a nest egg.
Reply: Selling now would likely generate a tax bill that your heirs probably wouldn’t face if you bequeath the house.
If you have lived in the house for at least two of the previous five years, you could exempt up to $ 250,000 of the profit from the sale of the house from capital gains tax. You will however have to deal with the depreciation recoupment. Rental properties generally get a tax break called depreciation that must be paid off when you sell. (A tax professional can help you calculate this.)
If you bequeath the house, the property would get a new tax value on the date of your death known as the gross-up. All the appreciation that has occurred in your lifetime would never be imposed. In addition, there would be no recapture of depreciation.
President Biden has proposed removing the increase, but in the past such proposals have not been very successful.
Taxes aren’t everything, however. The property may become more than you want to manage, or you may be able to invest the money elsewhere for a better return. Speak to a tax professional to understand the potential tax impact, but make your decision based on what’s best for you.
Social Security late decision
Dear Liz: You always advise people not to start collecting Social Security benefits until they are 70 if they can afford it. What then? Is there a reason to delay the start of benefits once you reach the age of 70? Or do you delay each month after that by leaving money on the table?
Reply: Your social security benefit peaks at age 70, so there is no point in delaying your claim beyond this point.
Liz Weston, Certified Financial Planner, is Personal Finance Columnist for NerdWallet. Questions can be sent to him at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.