How to work with a fee-only certified financial planner

By Don Kuehn

In my last column, I recounted my search for a fee-only financial planner to help both my wife and me get comfortable with the notion of real-life economics after the paychecks stop. Through the recommendations of people I trust, I found a fee-only planner in Prairie Village, Kan. We spoke on the phone, he sent me a packet of information, and after reading it, I set up our first meeting.

I went prepared. I took with me all of the financial data I could collect on how our current portfolio was invested, what retirement benefits we expected to receive, last year's tax return, insurance, IRAs and our current Personal Earnings and Benefits Statements from the Social Security Administration.

We discussed income needs and goals and shared our philosophies toward investing. To my satisfaction and relief, we were pretty much on the same page in regard to how he manages his clients' money and how I have been handling our assets. We both favor no-load mutual funds, share an aversion to paying more taxes than necessary and seem to agree that structuring a portfolio to protect against down-side risk is more important than surfing the latest wave of speculative investments.

I gave him some parameters within which to work, and we set up a second meeting for a few weeks later.

At our follow-up session, the planner had a lengthy analysis of our current situation and some projections about how our investment portfolio could be modified to produce the cash income we would need. This "asset allocation plan"--based on the "Efficient Portfolio Theory"--is the most important part of any investment program.

While just about anyone can make money in a roaring bull market, the fact is that occasionally the stock markets take a turn. During these times (which may be brief or can last a decade or more), it is the careful mix of bonds, cash reserves, real estate, utilities, foreign investments and even options that can keep your boat afloat.

Originally I wanted to shoot for a certain after-tax income, but after discussing it further at home, my wife and I decided to increase our cash flow for the first seven years of retirement--when we expect to be most active and have greater expenses. We can then scale down the amount we draw from our investments after Social Security and our "qualified" benefits kick in.

I called our planner back and suggested tweaking his assumptions just a little bit. For example, he had assumed a 3 percent inflation factor; my wife was more comfortable using 3.5 percent.

I have this notion that retirement spending is like an old game show. You should have what's behind:

• Door #1: your personal investment portfolio of cash, mutual funds, stocks and other assets;

• Door #2: "qualified" investments that can be accessed only after reaching a certain age, such as 59½ for IRAs; and

• Door #3: Social Security at age 62 or at 65 to 67 depending on your year of birth.

When you open each door is just as important as how much is back there. It's best to leave your qualified assets in place to grow tax-free for as long as possible. With luck, your biggest worry will be dealing with mandatory withdrawals from qualified plans in the year after you turn 70½.

If you have a defined-benefit pension plan (like state Teachers' Retirement Systems) that pays a monthly amount, find out if you can tap into it at retirement or if you must (can) wait until you reach a certain age (e.g., 65). This will tell you behind which "door" it belongs for planning purposes.

Our third meeting produced still more analysis and detail of how an asset allocation model would be structured after taking into account the changes I asked for. Then we talked about other ways of achieving the same goals, different tax strategies, alternatives to liquidating big chunks of our portfolio in one tax year, and what services I thought the planner could provide for my wife and me in the future.

Both my wife and I now have a better understanding of where the grocery money will come from and the security and peace of mind that we won't outlive our investments.