Money

The Role of Financial Advice in Early Retirement

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Today’s post is written by Jeremy Zuke, one of my financial planning colleagues at Abundo Wealth. Jeremy achieved financial independence in 2022 and left a corporate marketing job to pursue work he is passionate about. 

A longtime Boglehead and hater of fees, he joined Abundo (with a nudge from me!) to further the mission of changing the financial planning industry with high-quality advice at affordable prices. Today, he’s going to share some of the ways we help people who start as DIYers on the path to FIRE and retirement more generally.

Take it away Jeremy….

Can a Financial Planner Help on the Path to FIRE?

Having consumed a full 10,000 hours of blogs, books, and videos on investing and financial independence over the years, I developed what might generously be called a healthy skepticism about both the financial services industry and paying any fees above and beyond the couple basis points I pay for my index funds.

If you follow anything close to the 4% rule of thumb, it is just so obviously a bad idea to give 25% of your retirement income (or more) to an advisor in the form of a 1% AUM fee. And commissioned sales is a complete non-starter.

Related: Conflicts of Interest With Investment Advice

But what I have come to appreciate in this encore career is that we can separate the value of a financial planner from the terrible legacy fee models that dominate the industry. It can be extremely valuable to have a personal trainer, therapist, primary care doctor, and many other professionals provide guidance in their field of expertise. Likewise, a (low cost) financial planner can amplify your path to FIRE in many important ways.

Why not just DIY?

Well, it’s definitely an option! There are many great resources out there for interested people to use. At a baseline level the math behind achieving financial independence is not especially complex. 

Because we are an advice-only firm (our clients self-manage investment accounts). We have a lot of DIY-positive clients at Abundo – including many on the path to early retirement. This post is about what we hear from those folks and how they tell us we have helped them on their journey.

Determining Retirement Readiness

The most common thing we hear from clients pursuing FI is “I think I have enough (or am on track to have enough), but I’m just not sure.” I suspect part of this comes from the ever-increasing complexity of withdrawal rate methods, constant inflow of new study findings, and a general sense of anxiety that the person might just be missing something.

When you’re ready to make a big life-changing decision, there’s just no real replacement for detailed modeling of your own situation. Online retirement calculators and broad guidelines like “the 4% rule” are a great start.

Modeling the impact of Social Security, pensions, taxes, inflation, unique expenses, home purchases, part-time income, and other things that make up your expected future can be tricky. That’s where detailed planning software really shines, along with open discussion to uncover all the details you might not have thought about.

Most people in the FI community tend toward being overly conservative, as a general rule. There are plenty of reasons why you don’t need quite as much as you think to leave a job you don’t particularly like. We love helping people find that answer.

Getting Emotionally Ready To Take The Next Step

So the numbers tell you there’s a path to making the big exit later this year. Exciting, right? Well, sometimes I would say the reaction is more like “a blend of excitement and fear”. This was, without question, the hardest challenge I faced when leaving a high-paying career I had been successful in for over a decade. 

Related: Should You Work One More Year

I came to associate a sense of self-worth with a prestigious position and high earning potential. That was strangely hard to shake off. You could have told me I had a 100% chance of success. I might still have gulped at the opportunity cost of leaving all that money behind.

Having someone to talk to in that situation who can help not just on the math side, but on the emotional side of financial independence can really help keep things in perspective. We embrace that role of being someone our clients can talk to and act as a sounding board for ideas. 

This is an underrated role. It’s especially useful for people who otherwise don’t have many people they can talk to about ‘million dollar problems’ like this.

I love to challenge my clients and brainstorm. How could they use their time and energy to fulfill emotional needs currently provided by their jobs in more personally satisfying ways?

Related: Does FIRE Make Life Harder?

Spotting the Things You Might Not See

As I said earlier, the general principles of financial independence are fairly straightforward. But there’s also a lot of detail in the financial planning space. Even people who pay a lot of attention relative to the general population (like readers of this blog) can’t possibly be expected to be experts in everything. Even financial planners aren’t experts in everything!

We hear tons of questions from even our most knowledgeable clients on topics like:

  • Withdrawal strategies
  • Tax location diversification
  • Buying vs. renting
  • Paying down debt vs. investing
  • Roth conversions
  • Social Security claiming strategy
  • Reducing health care costs in retirement
  • How to set up estate planning documents

All of these are solvable questions. But you can significantly reduce your time spent (as well as the possibility of making a significant mistake) by working together on your plan with an expert who knows your situation. And the answer to these questions can change significantly from year to year as your life changes! 

While much of the industry is stuck in the mindset of being investment managers, we view that as only a tiny piece of the puzzle (and one that has been solved for a while with broad, low-cost index funds).

Getting Your Spouse Involved

It’s the rare couple where both members have a keen interest in financial planning. The vast majority of the time, you have one spreadsheet nerd and one person who lovingly tolerates the spreadsheet nerd. That brings up two really important, but not all that often discussed, considerations where a planner can be immensely helpful.

The first is the case where the spreadsheet nerd becomes very sick or even passes away earlier than expected. All those detailed plans are almost certain to be lost in cyberspace and very difficult to access for the spouse who is left behind with a large sum of money to manage.

Where is the surviving spouse likely to go? High-fee advisors with smooth sales pitches and big advertising budgets are going to come knocking. And all that great planning and years of savings might be undone. Developing a long-term planning relationship while both spouses are healthy greatly reduces that risk.

But there’s another benefit that is even more important than that. Improving money communication in a relationship – ensuring each spouse’s perspective is heard, solving spending disagreements, and ensuring a level playing field of education on key concepts – is a role tailor-made for an unbiased third party.

When you have time on the calendar to talk with a financial planner, it creates the habit of having constructive money conversations. This helps ensure everyone is on the same page. Especially for a huge choice like when to retire, that sense of alignment can be extremely comforting.

Summing Up

DIY investing is easy. Index funds and great interfaces at low-cost brokers have solved that problem. DIY financial planning, on the other hand, ranges from easy to very complex. 

A quality financial planner helps provide you the confidence you need to make important decisions. They can also remove some of the mental load so you can focus on other things you love doing. Just don’t pay too much for the privilege!

Have you used a financial planner to assist you in making the retirement decision or at other points along your financial journey? If so, what has been the greatest benefit, or downside, of your experience? 

If not, what has stopped you from engaging with a financial advisor? Do new advice-only financial planning models in contrast to traditional commissions based or assets under management models make you more likely to engage with a planner?

Let’s talk about it in the comments below….

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[Chris Mamula used principles of traditional retirement planning, combined with creative lifestyle design, to retire from a career as a physical therapist at age 41. After poor experiences with the financial industry early in his professional life, he educated himself on investing and tax planning. After achieving financial independence, Chris began writing about wealth building, DIY investing, financial planning, early retirement, and lifestyle design at Can I Retire Yet? He is also the primary author of the book Choose FI: Your Blueprint to Financial Independence. Chris also does financial planning with individuals and couples at Abundo Wealth, a low-cost, advice-only financial planning firm with the mission of making quality financial advice available to populations for whom it was previously inaccessible. Chris has been featured on MarketWatch, Morningstar, U.S. News & World Report, and Business Insider. He has spoken at events including the Bogleheads and the American Institute of Certified Public Accountants annual conferences. Blog inquiries can be sent to chris@caniretireyet.com. Financial planning inquiries can be sent to chris@abundowealth.com]

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