‘Fee based’ vs ‘fee only’ financial planners: There is a big difference

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

answer: That’s understandable. Getting good advice can mean the difference between growing your new wealth and wasting it. But finding a good, honest, competent planner requires some work.

Most advisors are not fiduciaries, so they should not put your own interests first. Instead, they may recommend an investment that costs more or worse than the available alternatives, simply because the recommended investment pays more.

Such advisors often call themselves “fee-based,” hoping you’ll confuse them with “fee-only” planning. Planners are paid only by the fees you pay; they do not receive commissions or other compensation that could influence their recommendations.

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

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

They must be willing to confirm in writing that they will act as fiduciaries. Finally, check their backgrounds, including their disciplinary history BrokerCheck.finra.org.

Health savings account rules

Dear Liz: I created a health savings account when I was self-employed using an HSA-compliant health plan. Now I am employed. My employer does not offer a health plan designated as an HSA, but my deductible is $7,000, higher than 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 may not be covered by other health insurance, including Medicare.

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

Unlike flexible spending accounts, which are “use it or lose it,” HSAs allow people to roll over unused balances from year to year. Plus, balances can be invested for long-term growth. Many people value these tax advantages so much that they pay medical expenses out of pocket, leaving their HSA balance to 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, a health research organization. previously known as the Kaiser Family Foundation.) The maximum out-of-pocket limit – including deductibles and co-pays, but not premiums – is $7,050 for individuals or $14,100 for families in 2022.

As you can see, you’ve got the worst of both worlds: a very high deductible and no option to save in an HSA. Perhaps your employer compensates you so well in other areas that you can overlook this deficit in your benefits. If not, it’s time to find an employer who can offer more.

Social security and inflation

Dear Liz: If I had waited until age 70 to claim Social Security, my benefits would have increased by 8% a year. With inflation above 8%, should I take Social Security early? I am almost 68.

answer: This question is answered in the previous column but it needs to be addressed again because many people misunderstand how Social Security increases the cost of living.

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

Applying now doesn’t give you anything extra and, in fact, costs you because you’re giving up the 8% annual delayed retirement benefit you would have otherwise received.

Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions can be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form. askliweston.com.

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