146 Minutes of Fame

Personal Finance

Some people get 15 minutes of fame, I got 146 of them! It was my pleasure to join Kyle Hill, CFP® on his podcast – Personal Finance from the Hill-Top. 

I put on my CFA cap and we walk through the basics of stocks, bonds, diversification, and more. You even get to hear me try to pronounce foliage.

Click on the link below to listen!

Personal Finance from the Hill-Top Episode #6 – Diving a Layer Deeper into Investments


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    Financial Advisor David Tuzzolino

     

    David Tuzzolino, CFA, CFP®, is the Founder and CEO of PathBridge Financial, a firm that specializes in providing comprehensive financial planning and investment management services for clients that are nearing retirement and love to travel.

    How Much Do I Need to Retire (and Travel Like Royalty)?

    A white castle rises out of the forest, clouds in a blue sky

    A Simple Retirement Calculator

    One of the most common questions in planning for retirement is: “How Much Do I Need to Retire?” And since I specialize in working with travelers, travel always comes up. The question may be, how do I travel like royalty, a rock star, or just, well?

    The answer is incredibly simple: “It depends.”

    You can start with a quick-and-dirty analysis that won’t take you more than fifteen minutes. NerdWallet.com has a solid, basic retirement calculator here, but the following concepts will work with any calculator you use.

    The initial inputs are straightforward: age, income, current savings, and the amount you save every month. The retirement calculator then illustrates how much you will have at retirement compared to how much you will need to retire. Simple, and not a bad start, but there are ways to refine your results further.

    On the NerdWallet calculator, click “Optional.” Additional inputs appear.

    The first input, “Monthly retirement spending,” is automatically set to use 70% of your pre-retirement income. A common rule-of-thumb is you’ll spend approximately 70-80% of your pre-retirement income once you retire. However, I have found this number can be low, especially when working with clients who expect to travel extensively. Consider bumping this number up to 90-100% if you’re doing a quick calculation. If you’d like to refine this number, put together a detailed budget for retirement, keeping in mind the significant changes that can occur when you tackle your bucket list and medical expenses grow.

    The next input is “Other expected income.” This includes Social Security, pensions, annuities, and other income sources you may have in retirement.

    The default age of retirement is set to 67. Change this to your desired retirement age. Also, have some fun with it. Increase your age, lower it, and see how it affects the numbers. Your final number should be conservative, perhaps a few years before you’d like to retire. This will build in some extra cushion to your projections. Many people retire earlier than they expected due to layoffs, early retirement packages, or health issues.

    Life expectancy is automatically set to 95, a reasonable number. However, maybe you have a family where everyone sails past 100 in excellent health. You can always make adjustments, and the bigger the number, the more conservative your estimates will be.

    The “Investment rate of return” default is 6% pre-retirement and 5% after retirement. These rates of return assume your portfolio will become more conservative post-retirement. These are reasonable estimates, but you can adjust the pre-retirement return, either up or down, to see how your results change. Just be realistic and don’t stray too far to the upside.

    How does it look? Are you on track? If you are, fantastic!

    You’re not quite done, however. Play with the numbers and create some worst-case scenarios. What happens if you have to spend dramatically more than you anticipated? How do you look if your investment returns are lower than expected? If you are still on track to retire, try nudging down your retirement age. You may not want to retire early, but it’s nice to know the option exists.

    More Detail

    The quick-and-dirty option above is acceptable for some. However, if your life is a little more complicated or you want to get more granular, consider the information below.

    Expenses

    Let’s refine the “Monthly retirement spending” part of this model.

    Put together a detailed list of your expenditures. There are hundreds of budget spreadsheets online. Find one that does a good job of breaking out spending into categories that will help you organize your expenses. If you’d like the spreadsheet that I use with my clients, please send me an email at david@pathbridgefinancial.com. Double-check your spreadsheet with bank statements. Does the spreadsheet expense total equal what is coming out of your bank accounts? If not, figure out why and adjust.

    Next, focus on retirement. Make a copy of your spreadsheet and start reducing or eliminating expenses that might change once you’re retired. What commuting expenses will go away? Will you continue to need a second car? Will your mortgage be paid off? Do you have life insurance policies that you will no longer need?

    Unfortunately, not all expenses will decrease. Health care costs will grow as you age. Projections vary greatly, but a 65-year-old couple should expect to spend approximately $11,000 a year on health care in retirement. Fidelity Investments has a health care cost calculator that will take you about three minutes to fill out.

    Now, the good stuff. In retirement, travel and leisure often increases in frequency and duration. Dream vacations to exotic locations, the purchase of an RV or boat, a summer in Tuscany, the lake-cabin you’ve always dreamed about – let your mind wander. How much would you like to spend on travel? Go into as much detail as possible.

    How you like to travel will affect your travel budget. Do you prefer 5-star luxury resorts on the other side of the world and dining at Michelin-star restaurants?

    A chef uses tweezers to complete a fine dining meal

    Or do you find most of your vacations are within driving distance of your home where you stay with friends, and you pride yourself on scouring farmers’ markets to prepare home-cooked meals? Odds are you’re somewhere in the middle, but dive into your travel deeply and try to put together a realistic travel budget.

    It’s easy to get caught up in dreaming about once-in-a-lifetime trips, but there’s something that most people find even more important – family. You’re likely to have much more leisure time in retirement, which usually results in more family time. How many trips are you going to take to visit your loved ones? Grandchildren especially can be an irresistible draw. Don’t forget to add these trips to your retirement travel budget.

    Don’t hold back when estimating expenses. We’re talking about traveling like royalty here! Err on the high side, and don’t be afraid to include some extravagant extras. It’s better to reach, and save some extra money, then underestimate and not have enough. You can always reduce some expenses or eliminate some of those extras when the time comes. A key concept when planning for travel in retirement – be flexible.

    Income

    If you’re going to adjust the “Other expected income” amount in the calculator, keep in mind that this will increase income every year between retirement and death – a limitation of this model.

    In reality, there are ways to increase income for a portion of retirement, including part-time employment or renting out a home, but these are unlikely to last your entire lifetime. There are also one-time income sources that might make a huge difference, such as selling a house or an inheritance. If you are running into too many one-offs, consider consulting a financial advisor who has software that can accommodate any non-standard inputs. I discuss this later in the article.

    The Answer

    By now, you should have a reasonable answer to your question: “How Much Do I Need to Retire (and Travel Like Royalty)?”

    You should have a good idea of how much you need and how your current situation looks in comparison. Are you coming up short? The best way to address this is to save more if you can. Even a few hundred dollars each month can be meaningful if you adjust course early.

    If saving more is impossible, nudge your retirement age higher. Working an extra year or two might be the solution to your shortfall. Spending less in retirement will stretch your nest egg as well. Remember, being flexible is key.

    However, don’t be tempted to increase the investment rate of return just to meet your retirement goals. It’s conservative for a reason, and you should keep it that way. A balanced portfolio of stocks and bonds isn’t going to return 15% a year over the long-run, just because the calculator allows the input.

    retirement travel illustrated by a tablet and statements

    If you’re unsure of what rate of return to use, Vanguard has a website that illustrates the average investment return for stock/bond portfolios over 90+ years. There are no guarantees that the future will deliver the same results, but it’s an excellent place to start. Remember, it makes sense to be conservative.

    You May Need a Financial Advisor

    There are many reasons you may decide to contact a financial advisor. The most important reason – your question: “How Much Do I Need to Retire (and Travel Like Royalty)?” was not answered adequately using online resources. Also, consider the following:

    • Would you prefer more detail in your retirement projections?
    • Does your situation involve a level of complexity that an online calculator cannot handle?
    • Would you feel more comfortable talking through your important retirement decisions?

    If you answered yes to any of these questions, you might want to talk with a financial advisor. Where do you start? I recommend reading this article from the CFP Board: “Ten Questions to Ask Your Financial Advisor.” Or, if you’d prefer a little humor with your advisor search, please take a look at my article: “How to Spot a Terrible Financial Advisor You Can’t Trust.”

    Now that you’re armed with what to look for in a financial advisor, I recommend the following directories:

    Find a CFP® Professional

    The National Association of Personal Financial Advisors (NAPFA) Find an Advisor

    Summary

    The answer to the question, “How Much Do I Need to Retire (and Travel Like Royalty)?” is – it depends. It depends on your wants, needs, and resources. Whether you tackle this question with an online calculator or with a financial advisor, make sure you’re comfortable with the results and have a clear understanding of what it will take to achieve success.


    Enjoy what you just read? If so, you can subscribe to my newsletter below. You’ll also receive a PDF that shows you exactly what a comprehensive retirement plan for travelers looks like. Thanks for reading!

     

     
     
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    Financial Advisor David Tuzzolino

     

    David Tuzzolino, CFA, CFP®, is the Founder and CEO of PathBridge Financial, a firm that specializes in providing comprehensive financial planning and investment management services for clients that are nearing retirement and love to travel.

    Is Paying a Financial Advisor Worth It?

    The Benefit Of Hiring A Financial Advisor?

    What if I told you that using the investment management services of a financial advisor will make you $2.6 million richer? And this number doesn’t include the benefits of financial planning or rely on magical investment returns that trounce the market. 

    An exaggeration? Unrealistic? It depends on your specific situation.  Read on, and I’ll tell you how I arrived at this number below, and you can decide for yourself if it makes sense or not.

    If you are in the mood to entertain some of my goofiness, please read this post straight through. If you would like to skip directly to the meat of this post, jump down to the section titled: The Worth of a Financial Advisor Trust me. I won’t be offended if you jump ahead.

    The Most Horrifying Phrase a Financial Advisor Will Ever Hear

    It was a stormy night, and cold rain pelted my office window. The streets of Pittsburgh were dark and empty. All souls, with any sense, had sought dry, warm cover.  I decided, after a long day of work, it was time to brave the storm and make my way home where a roaring fire and two fingers of whiskey awaited.Financial Advisor Office

    I grabbed my fedora, trenchcoat, and umbrella from an antique, wooden stand behind my desk. As I turned to leave, there was a loud crack of thunder and a flash of lightning that bathed my office in a bright glow. A serious-looking woman appeared before me with a large briefcase. “I’m in need of comprehensive financial planning,” she said.

    “You’ve come to the right place,” I responded, admiring her financial prudence.

    She shifted nervously from one leg to the other and hesitantly added, “However, my husband says ‘It’s not worth paying a financial advisor.’” A bolt of lightning struck close by, and the sound of thunder ripped through the office. A flood of light crashed through the window and illuminated my horrified face.   

    Thanks for sitting through that. I’ve always wanted to write a great-American detective novel. And after looking at a calendar that’s pretty full of financial advisor stuff, I realize it’s not going to happen anytime soon. Now on to the good stuff.

    The Worth of a Financial Advisor

    Most work a comprehensive financial advisor performs can be assigned to one of two buckets: investment management and financial planning.

    This article will cover the first bucket – investment management.

    For much of the data in this article, I lean heavily on research performed by Vanguard and published in a whitepaper titled: “Putting a value on your value: Quantifying Vanguard Advisor’s Alpha®. “ Vanguard’s research concludes that a financial advisor can add approximately 3% to net returns for clients, but “…the actual amount of value added may vary significantly, depending on the client’s circumstances.” I dive into the details below.  

    Investment Management

    It’s no secret you can deposit your retirement savings at Vanguard, a firm that offers inexpensive mutual funds and exchange-traded funds (ETFs). If you do it yourself, you can avoid an advisor’s management fee, which is usually about 1%. Score! That’s a significant savings!

    Less well known is that Vanguard has done research measuring the value of a financial advisor’s advice. The benefit of using an advisor? Approximately 3% a year! Even after taking into account an advisor’s 1% fee, the difference is significant.

    Using a $500,000 portfolio to illustrate, the 3% benefit of using an advisor equals $15,000/year, or $10,000/year if your advisor charges a 1% fee. And this is not a one-time gain. On average, it occurs every year and compounds over time.

    I put together an example to illustrate the benefit of using an advisor below. Before I continue, I feel like I need to put on a lawyer hat. No, I am not a lawyer.

    The following is an example and not intended to apply directly to your situation. It is simplified to illustrate a valuable point. Please perform your own calculations, which will be specific to your individual situation. You can find a straight-forward investment calculator at omnicalculator.com.  Or, better yet, ask a financial advisor to do a personal, detailed analysis. If you’d like to dig into the exact numbers used to calculate the following returns, please see the appendix at the end of this article.

    There are many moving parts in this calculation, and I attempted to use fair assumptions. These numbers may be considered aggressive or conservative, depending on individual scenarios. I am also assuming Vanguard’s research is accurate and reliable. So, let’s get on with it!

    How valuable is using a financial advisor according to my calculations? A $500,000 portfolio that consists of 60% equity and 40% will be ahead by over $2.6 million over a period of 35 years.The Benefit Of Hiring A Financial Advisor?

    How is this possible? In my example (again, please see the appendix for specifics), I have the financial advisor managed portfolio returning an extra 2% per year. The 3% benefit of using an advisor is reduced to 2% to cover the average advisor’s fee.

    We know that Vanguard’s research states that financial advisors help the average investor earn returns, which are approximately 3% higher than if they manage their own investments. But where does this additional return come from?

    Behavioral Coaching

    The most significant benefit of working with a financial advisor is behavioral coaching. Vanguard indicates an advisor adds 1.5% of return by helping clients through the emotional rollercoaster that is the stock and bond market.

    When the markets are seemingly up every day, and discount brokerage commercials are screaming at you to put a second mortgage on your home and invest aggressively so that you can live the Yacht Life, your advisor will be there to remind you of your long-term plans.

    The Yacht Life

    When the market has dropped 20%, and the financial media is predicting the end of times, it’s difficult to ignore the nausea you feel each time you look at your brokerage statement. When CNBC covers half your TV screen with the bright red emergency of the day, and your instincts are screaming at you to sell, your advisor will be there to remind you of your long-term plans and reduce the panic you’re feeling.

    I know what you’re saying to yourself: “This emotional investor is not me!” However, it very likely is, and studies have shown it. It’s easy to look at a financial plan in times of calm and rationalize a 20% drop in your portfolio as perfectly acceptable. It is much harder to stick with your long-term financial plan when the market is down significantly, the economy seems to be worsening, and every investment pundit with access to the media is screaming – “There’s no end in sight!”

    Spending Strategy

    You may be thinking: “Saving and investing is the hard part. I think I’m pretty capable of spending without any help.” Surprisingly, a spending strategy can be complicated, and clients who use a financial advisor can generate an extra return of up to 1.1% a year on average.

    Clients with a mix of taxable and tax-advantaged accounts, who are in a high tax bracket, have the most to gain. But just because you’re not spending money yet, doesn’t mean an advisor can’t help you with a spending strategy. Setting up both taxable and tax-advantaged accounts in preparation for retirement will give you the flexibility to keep your tax rate level when you start withdrawing funds. It will also help you avoid income spikes that could launch you into one of the top tax brackets.

    Asset Location

    The type of account you use to hold different investments is important and, if done correctly, can generate an extra 0.75% of return per year. Tax-efficient investments such as passive equity ETFs should be held in taxable accounts. Less efficient investments that aggressively produce income, like most bonds, should often be held in a tax-advantaged account. The expected holding period will also influence the decision of which type of account to use. Again, clients in a high tax bracket with a mix of taxable and tax-advantaged accounts have the most to gain.

    Cost-Effective Implementation

    Vanguard research measures the potential benefit of moving toward low-cost funds to be 0.34% in return per year. This advisor benefit may be viewed as easily replicable by clients who are investment-savvy and don’t mind taking the time to research investment options. Truthfully, constructing an initial, low-cost portfolio is not difficult if you have the investment knowledge and patience to complete the task. 

    However, the difficult part is the ongoing monitoring of the initial portfolio once it is established. Existing funds may have a change in strategy, a change in management, or not perform well when compared to their benchmark. Any of these changes may make it necessary to find a replacement fund. Even funds with passive strategies must be monitored to make sure the original investment thesis remains in place.

    There have been over a thousand new ETFs created in the last five years. New funds that hit the market may have lower fees or execute a desired strategy better than an existing holding. This ongoing monitoring is time-consuming and can be tedious for people not interested in the nuance of investing.

    RebalancingRebalancing

    Vanguard determined that, on average, portfolio rebalancing resulted in a benefit of 0.26% per year. Rebalancing keeps the original asset allocation steady by adding or trimming holdings periodically.

    Researchers compared two portfolios that had similar risk characteristics. One was regularly rebalanced, and the other was not. The rebalanced portfolio had higher returns.

    Even more importantly, rebalancing is a risk-reduction tool. When one asset class outperforms, it will grow to a larger weighting in the portfolio. Risk can increase beyond the original expectations if left unchecked.

    Reality

    Does an advisor really deliver 2% in additional returns after fees? Possibly, but real life is messy, and every situation is different. The key point is, even if we attribute an increased return of only 0.5% to an advisor, the benefit over a 35-year time frame can be in the hundreds of thousands of dollars. Plus, by handing off the time-consuming task of managing your investment portfolio you’ll have more time to do the things you love, such as spending time with family, traveling, or writing that great-American detective novel.

    Appendix:

    Here are the numbers I used:

    Present Value (of the portfolio): $500,000

    Expected Return using an advisor: 7.1%. The average return of a 60% equity / 40% bond portfolio over the last 92 years has been 8.6%. I subtract 1% for advisor fees and .5% for mutual fund/ETF fees.

    Expected Return without an advisor: 5.1%. The average return of a 60% equity / 40% bond portfolio over the last 92 years has been 8.6%. I subtract 3% to account for the underperformance calculated by Vanguard research and .5% for mutual fund/ETF fees.

    Period: 35 years

    Compound Frequency – yearly

    The value of $500,000 becomes $5,515,711 at 7.1%.

    The value of $500,000 becomes $ 2,851,445 at 5.1%.

    *These final portfolio values are not adjusted for inflation.

    Assumptions:

    A 60/40 portfolio will average the same returns in the future as the past 92 years.

    The client does not reduce their equity holdings as they approach or move through retirement. A client might want to invest more conservatively as they age.

    The advisor fee is a constant 1%, whereas, in reality, most advisors will reduce their fee as assets grow and pass certain thresholds.

    For simplicity, taxes are not included.

    The benefit of using a financial advisor is illustrated in this example as a smooth 3% per year. In reality, this benefit is choppy, and timing is unpredictable.


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    Financial Advisor David Tuzzolino

     

    David Tuzzolino, CFA, CFP®, is the Founder and CEO of PathBridge Financial, a firm that specializes in providing comprehensive financial planning and investment management services for clients that are nearing retirement and love to travel.

     

    How to Spot a Terrible Financial Advisor You Can’t Trust

    A Terrible Financial Advisor You Can't Trust

    There are dozens of articles available online that will help you find a great financial advisor. This is a little different. If you’re more concerned about spotting an advisor that might steal your entire life’s savings and have a starring role in the next episode of American Greed…this is your article! If you can answer yes to one or more of the following questions, then you have likely uncovered an awful financial advisor.

    Do you own an annuity as you walk out of your first advisor meeting?

    The first meeting with any reputable financial advisor should be mostly about you. What are your goals, dreams, and concerns? Are you being asked open-ended questions? If you find yourself talking very little and the meeting is moving toward the perfect product for you, you’ve stumbled upon a salesperson masquerading as a financial advisor. If you’re being offered an annuity, a variable whole-life insurance policy, or any product, in your first meeting, you have found a terrible financial advisor that is likely more concerned about their commission-checks than your financial well-being.

    Were you guaranteed market-beating returns?

    Welcome to American Greed 101. A slick financial advisor guarantees mouthwatering investment returns. They proceed to deliver splendidly, at least on paper. The victim, already projecting their future fortune, increases their initial, cautious deposit and entrusts the advisor with everything they own. This is usually when the financial advisor starts looting the account, stops answering the phone, and becomes nearly impossible to reach. If you are guaranteed anything involving returns, you have found an awful financial advisor.

    Does the advisor have a lot of white space after their name?

    You think, “This business card looks much cleaner without that confusing, alphabet soup, so why worry?” You’re not sure what those designations mean anyway. CERTIFIED FINANCIAL PLANNER™ professionals (CFP®) and individuals with the Chartered Financial Analyst designation (CFA) have been tested on knowledge crucial to being a competent financial advisor. They have also completed thousands of hours of professional work in the field. These designations will not guarantee you find a great advisor, but it is an excellent place to start your search. The white space on a business card might look great aesthetically, but it guarantees you have found an advisor that has not completed the requirements associated with these highly-respected credentials. (For more detailed information about these designations, please scroll to the bottom of my “About” page.)

    Is the advisor free?

    Only suckers pay for advice! Thankfully your new advisor doesn’t charge a dime! This is never the case. If you are not paying your advisor a fee, either for financial planning or investment management, they are being paid through commissions on the products they sell you. There are plenty of commissioned financial advisors that will have your best interests in mind, but this incentive structure rewards behavior that is less than ideal. Unfortunately, not everyone is as noble as they should be.

    Fee-only advisors do not receive commissions, and your interests will likely be aligned. This is an ideal situation if you want to increase your chances of finding a good financial advisor. If you are unclear as to how your advisor is compensated, ask. If they will not tell you or you are more confused after the explanation than before, you’ve likely found a sketchy financial advisor.

    Are you too busy to do a little background research?

    Information such as criminal charges, convictions, disciplinary actions, customer disputes, and bankruptcies is available online. If you have no interest in checking the background of the financial advisor who will manage your life’s savings, there’s no need to use these resources. But in case you were wondering, this information is available at brokercheck.finra.org and adviserinfo.sec.gov.

    Mistakes happen, so if there is a blemish on an advisor’s past, don’t immediately dismiss them. Ask them about it. They should have a clear and reasonable explanation. If this explanation is lacking or an advisor is associated with more than a few negative incidents, then you have probably found a terrible financial advisor.

    Does the advisor act as a custodian?

    A custodian will hold the assets of a client for safekeeping. Usually, a custodian will be a large, reputable firm acting as a middleman. If an advisor also acts as their own custodian, they have access to your money, and unsavory things may happen. The Bernie Madoff pyramid scheme would not have occurred if a third-party custodian was used.

    Do you hate the word fiduciary almost as much as the word moist?

    When I was growing up, the word moist was most commonly used to describe a perfectly baked cake on tv commercials. Somewhere along the way, it became one of the most offensive words in the English language. Don’t believe me? You could spend the better part of a day putting off blog writing to watch YouTube videos dedicated to the hatred of the word moist. (One of my favorites you can send to your moist-hating friends.)

    Unfortunately, the word “fiduciary” brings out the same reaction in many people. They simply don’t like the word. I get it; it’s confusing and sounds odd. But all fiduciary means is the advisor will do what is in the best interests of their client. Sounds good, no? Avoid the word, and you might find a terrible financial advisor who is doing what’s in their best interests instead.

    Did you sign up with the advisor over the phone without an interview meeting?

    A good advisor will want to meet you to determine if you’re a good fit for their firm. This meeting can be done in person or virtually, but it should be a two-way conversation. Do you feel comfortable with the advisor? Do they seem interested in your wants, needs, and concerns? Are they asking you questions to gauge if you would be a good match for their skillset? A lousy advisor just wants to be paid and will take any client with a pulse.

    Are you confident in your ability to spot a financial advisor you can’t trust?

    Hopefully, you now have all of the tools you need to identify a genuinely awful financial advisor. Are there quality advisors who may run afoul of one or two of the topics just discussed? Yes, but the more red flags you uncover, the more concerned you should be.

    Guaranteeing returns, trying to sell a product in the initial meeting, and acting as a custodian are severe warning signs. These red flags should be non-negotiable.

    It can be a minefield out there, so proceed with caution. And good luck avoiding that awful advisor who will siphon off your retirement savings to buy an apple-red Hummer in order to attend Fyre Festival II in style!

    Below is a picture of David Tuzzolino, CFA, CFP®. He is definitely not a terrible financial advisor. Of course, I’m biased. Schedule a call and find out for yourself.

    Schedule a Call

    Financial Advisor David Tuzzolino

     

    David Tuzzolino, CFA, CFP®, is the Founder and CEO of PathBridge Financial, a firm that specializes in providing comprehensive financial planning and investment management services for clients that are nearing retirement and love to travel.