“Paid” vs. “Fee Only” Financial Planners: There’s a Big Difference

“Paid” vs. “Fee Only” Financial Planners: There’s a Big Difference

Dear Liz: How do I find a paid financial planner? I just inherited a lot of money, and trying to figure out our future is stressing me out.

Answer: It’s understandable. Getting sound advice can be the difference between growing your newfound wealth and squandering it. But finding a good, honest and competent planner takes work.

Most advisors aren’t fiduciaries, so they don’t have to put your interests ahead of their own. Instead, they may recommend investments that cost more or perform less well than the available alternatives, simply because the recommended investments earn them more.

These advisors often refer to themselves as “fee” advisors, hoping you’ll confuse them with “fee-only” planners. Paid planners are only compensated by the fees you pay; they do not accept commissions or other compensation that could influence their advice.

The Assn. of Personal Financial Advisors and the Alliance of Comprehensive Planners are two organizations that represent fee-based planners, many of which charge a percentage of your investable assets. You can find paid planners who work on an hourly basis at Garrett Planning Network and those who charge a monthly fee at XY Planning Network.

Interview at least three candidates. Ask them how they are paid and what your “all-in” costs – their fees plus the cost of the investments they recommend – are likely to be. Ask about their credentials and verify them. (You can verify the status of a certified financial planner at cfp.net/verify-a-cfp-professional.) Ask about their education and experience, including whether they have advised people similar to you.

They must be willing to affirm in writing that they will be trustees. Finally, check their background, including their disciplinary history, on BrokerCheck.finra.org.

Health Savings Account Rules

Dear Liz: I opened a health savings account when I was self-employed using an HSA-compliant healthcare plan. Now I am employed. My employer does not offer a health insurance plan designated as an HSA, but my deductible is $7,000, which is above the minimum for an individual. Can I continue to contribute to my existing HSA?

Answer: Unfortunately no. To contribute to an HSA, you must be covered by an HSA-compliant high-deductible healthcare plan, and you cannot be covered by any other health insurance, including Medicare.

HSAs were created to encourage people to choose high-deductible health insurance plans, but many people use them as an additional way to save for retirement. HSAs enjoy a rare triple tax relief: contributions are pre-tax, the account can grow tax-deferred, and withdrawals are tax-free if used to pay for eligible healthcare expenses.

Unlike flexible spending accounts, which are “use it or lose it,” HSAs allow people to carry over unused balances from year to year. Additionally, balances can be invested for long-term growth. Many people enjoy these tax benefits so much that they pay for medical expenses out of pocket, letting their HSA balance grow for the future.

But HSA-compliant health insurance policies must meet certain criteria, including a minimum deductible of $1,400 for individuals and $2,800 for families for 2022. (The average deductible in 2021 was $2,349 for individuals and $5,217 for families, according to KFF, the health care research organization formerly known as the Kaiser Family Foundation.) The maximum out-of-pocket limit—including deductibles and copayments— shares, but not premiums – is $7,050 for individuals or $14,100 for families in 2022.

As you can see, you end up with the worst of both worlds: a very high deductible with no ability to save in an HSA. Perhaps your employer compensates you so generously in other areas that you can ignore this shortfall in your benefits. If not, it might be time to look for an employer who can offer more.

Social security and inflation

Dear Liz: If I wait until I am 70 to benefit from Social Security, my benefit will increase by 8% per year. With inflation above 8%, should I take Social Security sooner? I am almost 68 years old.

Answer: This question was answered in a previous column, but needs to be addressed again because so many people misunderstand how Social Security cost-of-living increases work.

Social Security applies cost-of-living adjustments to your benefits, whether or not you are currently receiving them. In other words, your benefit has been receiving adjustments for inflation since you turned 62, when you first qualified.

Applying now earns you nothing more and, in fact, costs you dearly because you give up the 8% annual deferred retirement benefit you would otherwise receive.

Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions can be sent to him at 3940 Laurel Canyon, #238, Studio City, CA 91604, or by using the “Contact” form on asklizweston.com.

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