“Fee-based” vs. “fee-only” financial planners: There’s 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: This is understandable. Getting sound advice can mean the difference between growing your newfound wealth and wasting it. But finding a good, honest, competent designer takes some work.

Most advisers are not fiduciaries, so they are not required to put your interests ahead of their own. Instead, they may recommend investments that cost more or perform worse than available alternatives, simply because the recommended investments pay them more.

These consultants often call themselves “fee-based,” hoping you’ll confuse them with “fee-only” planners. Fee-only designers are only compensated by the fees you pay. they do not accept commissions or other compensation that could influence their advice.

The National Asst. of Personal Financial Advisors and the 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 developers who work hourly on the Garrett Planning Network and those who charge monthly retainer fees on the XY Planning Network.

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

They should be willing to declare in writing that they will be a fiduciary. Finally, check their background, including their disciplinary history, at BrokerCheck.finra.org.

Health savings account rules

Dear Liz: I set up a health savings account when I was self-employed using an HSA compatible health care plan. I am working now. My employer does not offer a health plan designated as an HSA, but my deductible is $7,000, higher than the single minimum. Can I continue to contribute to my existing HSA?

Answer: Unfortunately, no. To contribute to an HSA, you must be covered by an HSA-compatible high-deductible health care plan and 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 exemption: contributions are pre-tax, the account can be grown tax-deferred, and withdrawals are tax-free if used to pay for qualifying health care expenses.

Unlike flexible spending accounts, which are “use it or lose it,” HSAs allow people to carry over unused balances from year to year. In addition, the rest 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 balances to grow for the future.

However, 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, but not premiums — is $7,050 for individuals or $14,100 for families in 2022 .

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

Social security and inflation

Dear Liz: If I wait until I’m 70 to claim Social Security, my benefit will increase 8% a year. With inflation over 8%, should I take Social Security early? I am almost 68.

Answer: This question was answered in a previous column, but it bears addressing again because so many people misunderstand how the Social Security cost-of-living increase works.

Social Security applies cost-of-living adjustments to your benefits whether you’re currently receiving them or not. In other words, your benefit has been receiving inflationary adjustments since you turned 62 when you first became eligible.

Applying now doesn’t get you anything extra and, in fact, costs you because you’re giving up the 8% annual late retirement benefits you’d otherwise get.

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

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