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Where do i start when planning a retirement if my employer does not offer any plan?

I don't know anything about this process or the legal terms that are used, I have 3 kids and figured I waited to long to do this.

May 12, 2014 by Joshua from Appleton, WI in  |  Flag
10 Answers  |  12 Followers
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5 votes

Hello Joshua,

The earlier you start the better. One of the most important factors for investment success is "time value of money" (ie, the compounding interest over time). The longer your time horizon, the more likely you will have time on your side to grow your assets exponentially rather than linearly. As Kyle suggests, you need to educate yourself or get professional advice. Some options you should consider are a traditional or Roth IRA to start.

Comment   |  Flag   |  May 12, 2014 from Newport Beach, CA

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4 votes

Joshua, this is a great question and one that more people should be asking. It's becoming more common today that employers are cutting retirement plans and making employees fend for themselves. The days of staying with the same company for 40 years and receiving a pension that will take care of you after retirement are over, for the most part. I would consider starting with a Roth IRA but that might not be enough. The federal contribution limitations on a Roth are $5500 if you are under 50 and $6500 if over. If this isn't enough there are many other solutions to consider from an non-qualified advisory account to an annuity or even cash value life insurance can be a good retirement savings vehicle. I would reiterate my colleagues suggestions that getting professional advice form a qualified advisor is in your best interest. They can help you with the multitude of investment choices that can be in the Roth and also help direct you if you need to save more than the Roth allows.

Comment   |  Flag   |  May 13, 2014 from East Syracuse, NY

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Joshua, Arie has given you great advice. I particularly agree about going with an RIA for financial planning. While James is correct that CFPs accept a a fiduciary duty, they are not the only ones. Anyone who is fee only is likely a safe choice, I am not a CFP but I am a lawyer, and I get do not sell products. There are many advisors out there who will act as a fiduciary for you. There are also many who want to sell you financial products that pays the advisor a commission for the sale but may not be in your best interest to buy. Pick an advisor you feel comfortable with a start with a plan. Good luck.

Comment   |  Flag   |  May 13, 2014 from Hampstead, NH

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As Pam noted, you want to be wary of those individuals who pose as "financial planners" or "financial advisors" but whose primary motive is to sell you financial products. Kyle directed you to a website run by the CFP Board of Standards - which is a good start because Certified Financial Planners take a fiduciary oath, and are obligated to adhere to a high ethical standard. Another choice is to seek a CFP who is also a member of the National Association of Personal Financial Advisors (www.napfa.org) who go one step further and agree not to accept compensation of any kind in return for product sales (i.e. commissions). Many NAPFA advisors will help you get started on your plans on a simple hourly fee basis.

Comment   |  Flag   |  May 12, 2014 from Bridgewater, NJ

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Joshua, the place to start planning your retirement is at the kitchen table. You have to start thinking about when you want to retire and how you want to retire. How you want to retire means figuring out kind of lifestyle you want to have when you retire. With that guidance and with an outline of your income and investments I suggest you interview a number of Registered Investment Advisors (RIAs) in your area. Tell them what you’re looking for and find one with which you are comfortable. There are a few things to look out for. Avoid someone who promises you a specific rate of return, especially one that’s suspiciously high. Ask how the advisor is compensated; if he or she gets paid by anyone but you, be wary. Avoid agents who are affiliated with insurance companies. There’s nothing wrong with insurance but too often the solution the agent offers to every issue is an annuity or a life insurance policy. Great for the agent, not so good for the client. The mutual fund companies offer some guidance, but it’s hard to have a satisfactory long-term relationship with an 800 number or someone at a call center. Dealing with the major firms like Merrill & UBS means that you pay fees just for the privilege of having an account and these firms are actively discouraging their representatives from dealing with smaller clients.

Comment   |  Flag   |  May 12, 2014 from Suffolk, VA

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Daniel Glanville Level 10

Joshua, the best place to start is with education on what a sound retirement plan looks like FOR YOU. The same advice/plan does not work for everyone. There are unique details of every ones life that needed to be taken into account. Someone could have special needs children, or want to start a rollerskating business. You just never know. Here is where picking the person/people to work with. They need to have the heart of a teacher and be willing to work with throughout your whole plan. 1-2 meetings is not enough to plan the next 20, 30, or even 50 years of someone's life. Make sure your planner(s) are in it for the long haul and not just for the commission check.

I also recommend working with an independent planner. That is, they are not tied to one particular carrier or group of products, but rather can truly shop the market for what is best for you. Last thing I will say is, do not be afraid to ask questions. If you do not understand something simply ask, and then get it in writing and or in an illustration (basically the layout of what that particular product looks like in numbers). Happy planning

Daniel

Comment   |  Flag   |  May 14, 2014 from Colorado Springs, CO

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Hi Joshua, I believe you just overcame one of the biggest hurdles in the steps to financial success...admitting you need help. Now I think it would be good for you to learn and understand the financial planning process and figure out who are the right candidates to help you on this journey. I would begin with a visit to www.letsmakeaplan.org to learn the how, what, and why of financial planning and potentially look at CFP® Professionals in your area. Hope this helps as a good starting point.

Comment   |  Flag   |  May 12, 2014 from Bloomington, IL

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Hi Joshua! Good for you for beginning this process. There are lots of questions and variables that go into retirement planning. Here is a sample: How and where do you want to live? What type of health do you have now that may impact your future retirement? Do you want to travel? Do you want to change your line of work to one that you really love, no matter the cost? How long have your relatives lived? How much will your Social Security be? Do you have a pension or other assets that will be available during retirement?

It's best to start with a financial planner to discuss your goals and help you compute your needs. I recommend scheduling time to talk with a fee-only planner who charges by the hour or for an overall plan. This person should have the heart of an educator and make every effort to look out for your best interest. You may or may not need products yet, so be wary of "salespeople" until you feel comfortable with the direction your plan should take.

Comment   |  Flag   |  May 12, 2014 from River Hills, SC

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Jim Hyre, CFP® Level 7

Hi Joshua! You ask a great question, one that many people have, but many don’t act on. Certainly the earlier you get started working on developing a plan for your retirement is preferable, it is still helpful to get started even later in life!

We have developed a list of what we believe are the eleven essential components to a comprehensive financial plan. While planning for retirement is a major component of an overall financial plan, we believe it is best to take a broader view of your financial life.

• Goals & Objectives: These should be listed by priority and should be as specific as possible • Income Tax Planning: Tax returns should be examined to determine if you are maximizing tax saving possibilities consistent with your planning objectives • Balance Sheet: You should list all of your assets and liabilities to determine your net worth. This should be done periodically to track your progress towards overall goals and to identify changes in your financial situation that need attention. • Issues & problems: An honest appraisal of your current situation. You should identify both the strengths and weaknesses of your current situation as well as any risks you face • Risk Management & Insurance: A sudden unexpected event can derail even the most detailed plan unless you have anticipated and planned for catastrophic events. You should evaluate your life, disability, liability/umbrella, and long-term care insurance • Retirement, Education, and Special Needs: Consideration should be given to retirement, education (you mentioned you have 3 kids) and any other spcial needs (e.g., physically or mentally incapacitated dependents of divorce settlements). Financial projections should be prepared for these needs, along with funding strategies. • Cash Flow Analysis: You should periodically look at all current and planned for income sources as well as expenses to see if you have adequate income to cover planned expenses. Any shortfalls should be identified and planned for • Investment Planning: An analysis of your investments should be completed to determine if your rates of growth and diversification are consistent with your longer term goals and tolerance for risk • Estate Planning: Your financial plan should include a review of your lifetime gifts and final transfer of assets to reduce or eliminate your potential tax exposure. • Assumptions: As you develop your plan, you should keep a list of the assumptions you used and periodically review your actual results versus these assumptions. You should adjust your assumptions accordingly • Recommendations/Implementation: Your plan should be written, stating the assumptions used, identifying the specific steps you will take to make the plan a reality.

I realize this is a lot of information, but I tried to identify critical components of a comprehensive financial plan. As you can see, due to the complexity involved, hiring a qualified certified financial planner would be helpful. You should talk with several and find someone who will take the time to listen, asks good questions, takes the time to explain concepts and their planning process, and is someone you feel comfortable with.

Specific to a good retirement plan, there are basically four questions your plan should be able to answer for you.

• What rate of return (or, how much risk do I need to take) do I need with my investments in order to enjoy the same standard of living in retirement that I enjoy today? • How long will I need to work before I can afford to retire? • How much can I afford to spend and not run out of money? • Am I saving enough to reach my retirement income goals?

Joshua, good luck with your planning!

Comment   |  Flag   |  May 14, 2014 from Columbus, OH

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Be careful with trusting the CFP certification too much. Though the organization now claims to enforce a fiduciary standard, the actual business practices of CFPs can be very questionable with respect to the fiduciary standard. Even the CFP board members have had compliance problems, and the organization recently wiped away evidence of many advisors improperly claiming fee-only status in the CFP Board's own"find a CFP directory" without taking any action against those who had been misrepresenting themselves to the public.

The questionable nature of the fiduciary standard among CFPs is evidenced by the number of CFPs working for brokerage companies like Ameriprise (employs the most CFPs of any company) and John Hancock, where they sell and profit from commissions on fee-laden insurance, annuity, and investment products that would barely pass the suitability standard, let alone a real fiduciary standard. This may be partly because the fiduciary standard is relatively new to CFPs and not many have changed their business models as a result of it.

I entirely agree with James Kinney above, that if you want a CFP, go with a fee-only advisor, such as you can find through NAPFA. Of course, NAPFA is a CFP member organization that exists primarily to market its members (particularly in its advisor directory). So, what you won't find on NAPFA are many of the most qualified fee-only fiduciary advisors and wealth managers who hold designations such as the CFA (Chartered Financial Analyst) charter or who are CPAs or attorneys such as Michael Hatem above.

3 Comments   |  Flag   |  May 17, 2014 from Boston, MA
Daniel M. Flannery, CFA

http://www.cfainstitute.org/learning/investor/adviser/Pages/index.aspx

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Flag |  May 17, 2014 near Boston, MA
Howard Karp Bellet

There are so many ways to answer such a generic question like the one being asked without self-promoting or positioning that "your way" is better, or including negative comments about specific designations or competitors. If you're going to reference a competing company I'd suggest you get all of your facts straight. Consumers may not sense what I felt was more than a little underhandedness in your comments about Certified Financial Planners, John Hancock and Ameriprise. I happen to be a CFP and an Ameriprise Financial franchisee. Ameriprise, as I'm sure you also know, is not just a brokerage company and has buy-sell agreements with hundreds of companies such that there's not many products or services that cannot be selected very objectively and offered to consumers. I'm sure my comments could open up a hornets nest, yet I can't stand by when I just wonder what we can't all just get along.

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Flag |  May 18, 2014 near Hurst, TX
Daniel M. Flannery, CFA

Hi Howard, I certainly don't try to shill for the CFA designation, but 2 of the top 3 answers above recommended finding a CFP, and link to multiple CFP-only related marketing websites. I think I've provided just a bit of balance to this thread. I've got lots of respect for many CFPs out there, and may one day try to become one, but I don't think the organization lives up to the claims it makes to consumers with respect to issues like fiduciary duty and the enforcement of such a standard among its members. If you're one of the good ones, I wish you all the success in the world. Using an open brokerage platform CAN allow for products to be selected objectively and delivered at a low cost, but unfortunately there are financial incentives for advisors at major (and minor) brokerage firms like Ameriprise and John Hancock NOT to use the highest quality and lowest cost investment and insurance options for their clients. You tell me to get my facts straight, but you don't actually point out anything incorrect about my statements. Yes, many (or all?) Ameriprise advisors are dually registered, but that still means it's a brokerage firm and that its advisors collect commissions. From Ameriprise's Brightscope page, "Ameriprise Financial Services, Inc. is a Broker-Dealer with over 13,651 financial professionals registered nationwide." - http://www.brightscope.com/financial-planning/firm/51/Ameriprise-Financial-Services-Inc/ If folks want to know how Ameriprise has treated its investors and even its own employees, they should check these articles out: http://www.law360.com/articles/520495/ameriprise-gets-suit-over-20m-in-401-k-losses-trimmed + http://www.startribune.com/business/180449291.html

Flag |  May 18, 2014 near Boston, MA

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