Today’s episode addresses claims by the likes of Suze Orman, The White Coat Investor, and Clark Howard that financial advisors are a rip-off.
After 25 years in the industry, David can say without a doubt that not all financial advisors are created equal.
A good financial advisor will increase the likelihood that your retirement savings will last through life expectancy.
According to a Vanguard study, tapping into the services of a financial advisor could help you improve your results by as much as 3% points annually.
They can do so through three things: 1) By helping you stick to your plan and avoid making emotion-driven investments. 2) By setting you up with a sensible asset allocation that incorporates quarterly rebalancing. 3) Help you keep fees low by guiding you to low-fee alternatives.
David talks about the fact that most Americans don’t have a CPA and use software like TurboTax or services such as H&R Block to do their taxes. The problem with this is that these types of services are not paid or motivated to advise you on taxes you might pay on retirement distributions 20 or 30 years down the road.
CPAs themselves are not very motivated to save your taxes on your 401k IRA distributions, as their main goal is often to help you save on taxes today.
David shares three key things a good financial advisor can help you with: 1) to increase the rate of return on your investments. 2) to help you save on taxes at a time when you can least afford to pay them, like retirement. 3) to completely purge longevity risk from your retirement picture.
For David, a qualified financial advisor, through sophisticated retirement planning software, can help you anticipate what your tax burden might be years down the road and set up a plan that helps you maximize your after-tax cash flow in retirement.
David discusses the Longevity Risk, a situation in which investors go at it alone, seeking to neutralize longevity risk by attempting to follow the 4% Rule.
The 4% Rule states that if you never take out more than 4% of your retirement savings in a given year, you have a reasonably high chance that your nest egg will last through life expectancy.
The 4% Rule has recently been downgraded to the 3% Rule because some experts believed that the 4% Rule was built around overly optimistic and outdated variables.
For David, things aren’t as easy as they may appear because of what he calls the “Illusion of Liquidity.” Having money sitting around – as per the 3% Rule – can often lead to it being seen as an emergency fund or even a slush fund.
Mentioned in this episode:
David’s books: Power of Zero, Look Before Your LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code
PowerOfZero.com (free video series)
@mcknightandco on Twitter
@davidcmcknight on Instagram