Question: “I am 68, work for the government and plan to retire early next summer. My FERS/TSP are not funded to the point where I feel I can relax. [FERS, or Federal Employees Retirement System, is a retirement plan for federal civilian employees. The TSP, or Thrift Savings Plan, is a defined-contribution plan that is a part of FERS.]
I can beef up my TSP before this year’s contribution deadline with some of the $55,000 I have in savings, but I feel there is something better. I want my money to make money, but I am severely risk averse. I need to level up quickly as I can feel myself getting older as I type this!
I’m looking for good, solid, relatively safe, no BS advice for a novice investor that will help me more than an adviser. Or is there a certain kind of adviser I should be looking for? What should I do?”
Answer: Pros say the TSP is among the best retirement plan around — and you should take full advantage. “Don’t trust your gut here [that there’s something better waiting for you]. For the tax savings, support on the back end and low fees, there’s nothing that comes close to your TSP. If you are paying for an adviser without taking full advantage of the TSP, you are a sucker,” says Robert Persichitte, certified financial planner at Delagify. In other words, make sure you participate fully in that TSP and get the government match.
What’s more, your Lifecycle Funds (L Funds) — which are a TSP plan investment option — will automatically allocate based on your age and cost 0.06% or less, says Persichitte. “For a $10,000 investment, it’s $6. Most financial advisers charge more than 10 times that amount and many similar funds you can buy outside the TSP charge more,” says Persichitte.
For her part, Lauren Gadkowski Lindsay, certified financial planner at Beacon Financial Planning, also says the TSP is probably one of the best retirement plans around. “You can’t go wrong putting money into that. What you might need help with is figuring out how much and what your risk tolerance is to determine which investments. Do you qualify for a pension? A fee-only financial planner would help you answer these questions and give you some peace of mind about retiring,” says Lindsay.
While you likely should contribute as much as you can to your TSP now, that probably won’t add up to much considering you’re talking about retiring in less than a year. So pros say you might also want to think about continuing to work a bit longer, which would give you time to sock more money away and capitalize on matched funds.
“Unless you can find a way to reliably limit your expenses, including a buffer for the unknown, the best way to strengthen your retirement will be to work longer and save more. No one wants to hear that but pretending that’s not true will only lead to worse trouble later,” says certified financial planner Kenneth Robinson at Practical Financial Planning.
One thing to always keep in mind, regardless of the kind of adviser you’re working with, is that you likely can’t have return without risk. “Risk is the price of admission,” says certified financial planner Mark Struthers at Sona Wealth Advisors.
While a fee-only financial adviser, such as a certified financial planner, can give you pretty unbiased advice, “unfortunately, they won’t be able to help you earn higher investment returns without taking higher risk. In the long run, risk and return are intrinsically linked. Long-term investors accept higher short-term uncertainty in hopes of earning higher long-term growth. Over the last century or so, that’s usually been a successful tradeoff, in the long run. How long is the long run? Almost always years, and sometimes decades,” says certified financial planner Jim Hemphill at TGS Financial Advisors.
Indeed, everyone wants their money to make as much as possible, preferably without risk, but remember that you can’t have growth without a proportional share of risk, says Robinson. “Your goals are exactly at odds with each other. The more growth you’re after, the more risk you have to take.”
Maybe, maybe not: Here’s who should — and should not — get a planner. If you do go the planner route: “Find a planner who can objectively look at your financial situation and show you multiple retirement scenarios along with smart investment moves,” says certified financial planner James Daniel at The Advisory Firm.
Establishing a relationship of trust and confidence with a skilled fee-only adviser may help you learn more about investing and perhaps over time, begin to include more volatile, potentially higher-risk investments in your portfolio, says Hemphill. You should also be careful about increasing your portfolio risk with the stock market near long-term highs and with only one year’s worth of savings contributions before you fully retire, he says.
Robinson adds that you should beware of anyone who promises big returns with no risk. “The most likely outcome is that you’ll lose money and there’s a good chance that such an offer is fraudulent,” says Robinson. Indeed, many insurance product salespeople will sell products like annuities with the promise that they’ll offer returns with limited risk. “Just remember the products are designed so the insurance company always makes money. It doesn’t mean it might not be right for you, but most folks don’t realize what they are giving up for the tradeoff,” says Struthers.
Since you don’t have a lot of assets, working with a fee-only planner on an hourly basis or someone who does one-off plans might be the way to go. Hourly planners typically charge between $150 and $450 per hour and planners who charge per project can cost anywhere from $1,500 to $7,500, depending on where you’re located and the complexity of your situation.
When looking for a no-nonsense adviser, you’ll want a fiduciary, meaning they’re required to put your best interests ahead of their own. “You want them working for you, not the commission, the revenue sharing or some kind of bonus system their employer has worked up to push more profitable products and services. A fee-only fiduciary adviser is probably your best choice, but even with a fiduciary adviser, ask them how they get paid and have them sign a fiduciary oath,” says Struthers.
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