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Why People Over 50 Can’t Get Good Financial Advice

By Chuck Yanikoski

Most of the financial information you get is correct. But most of the advice is not correct, or at least not right for you. There are two main reasons for this: the nature of advice providers, and the nature of your financial situation.

Few providers of financial advice really understand the needs of the typical older client, because the people who train and support financial professionals do not understand us. What financial professionals do understand is the person whose main need is investment performance. This is the case for wealthy people (of any age) and of ordinary younger people who are still saving for retirement.

But for the majority of us somewhat older folk who actually have some risk of running out of money before we die, asset growth and wealth management are secondary issues. Financially speaking, retirement doesn’t mean (as the vast majority of today’s financial professionals appear to believe) that we simply have to adjust the way we view our finances, but rather, that we face an entirely new kind of problem. We will explore this in more detail in future columns. Meanwhile, when you hear financial professionals emphasizing investment or asset management, or talking about “retirement income planning,” these are signs that they grasp the lingo but not the reality, at least not your reality. For most of us, retirement finances are fundamentally a cash flow problem, not specifically an asset problem or an income problem. All areas of our finances are critical, and advisers of older consumers need to be competent in all of them. Very few are.

In addition, there is bias. Financial advisers may or may not be biased by the way they are compensated for what they do (usually selling financial products or managing money), but almost all of them, and the big companies who support them, are biased by their very expertise, whatever their specialty may be.

If you live and breathe investment management, for instance, everything starts to look like an investment problem. Never mind that other decisions might have a bigger impact: how you spend your money, when you start taking Social Security, where you live, what option you take from a pension plan, whether you have appropriate insurance for catastrophic or long-term health problems, and so on. You know the old saying: when all you have is a hammer, everything looks like a nail. To almost all financial companies, and to most financial advisers, you look like a nail of some kind, when in fact you are much more than that.

The other main reason why you will rarely get reliable financial advice, even from those rare people who have shaken themselves free of the limitations already mentioned, is that the problems are too complicated, and no financial company I have ever heard of has the tools to give you the right answers. Here’s an example.

Should you convert an IRA or 401(k) account to a Roth account (Roth plans require paying taxes up front, but then all future growth and withdrawals are tax-free)? The correct answer mostly depends on whether you will be in a higher tax bracket later than you are now – if so, then a Roth conversion usually makes sense. So advisers try to guess, or might even ask you, what your future tax situation is likely to be. But it takes intricate analysis to answer this correctly. For instance, if you were to sell a $400,000 mortgage-free house and purchase a $200,000 house with a mortgage, several hundred thousand dollars would be generated. Investing it would in turn create taxable income that could put you in a higher tax bracket than you had been expecting. But few advisers dealing with Roth conversions will ask if you are selling your house, and even if they do, you might not know the right answer, because unless your current and future cash flows are carefully analyzed, you may not know whether you even need to be thinking about “trading down” to a smaller home. I have yet to hear of a financial advisor who approaches the Roth question with this kind of analysis.

That is just one example of dozens. Since virtually no advisers are prepared to investigate and understand all the ways in which your current and future financial circumstances and decisions affect one another, any advice they do give you is based on incomplete information, which is to say, bad information.

A little knowledge is a dangerous thing. It’s dangerous for advisers, and it’s dangerous for you. But for the most part, it’s the best you can do, and ironically, in this venue, it’s the best I can do for you, too.

In future columns, I plan to address more specific issues, and in some cases I will support the common wisdom, while in others I will debunk it. And I will try to emphasize the importance of understanding the specifics of your own case. But at your stage of life, you should view all financial advice, including mine, with a very skeptical eye.