"Goals are dreams with deadlines" -- Diana Scharf

Tuesday, April 16, 2013

Leave it to the Pros: Things I Learned from a CFP

Mr. CFP, did you water my money tree today?

Did you know that April is National Financial Literacy month?  You probably did.  But if you didn't, don't feel bad.  I didn't realize it, either, until I received this incredibly helpful link from TIAA-Cref (my retirement plan provider).  The TIAA-Cref website contains a wealth of knowledge on a multitude of personal finance topics, both retirement-related and otherwise.  I'd highly recommend checking it out. 

Shortly after I started working for my current employer, I learned that I could meet with one of TIAA-Cref''s Certified Financial Planners to discuss my retirement goals as well as any other financial plans.  The human resources manager encouraged me to set up an appointment with a CFP.  "It's free," she explained.  "Why not take advantage?" 

She had a point, but I was apprehensive.  I was in my early-mid twenties, without any assets to speak of.  I barely felt like an adult, and a conversation about retirement accounts seemed like a very grown-up discussion.  Besides, financial planners were for wealthy folks, right? Wouldn't the financial advisor feel like I was wasting his/her time since my retirement account was such small potatoes?  Would s/he judge my financial decisions?  Would I have to tell the CFP that I had taken out a car loan with a double digit interest rate? (yeah, I know.  That was crazy.  Paid off that sucker in December and won't be doing that again.). 

I arranged a meeting with TIAA-Cref's financial planner, despite my misgivings.  The CFP turned out to be a perfectly pleasant fellow.  He asked me a few basic questions to help him get an idea of my financial position:
  • How old are you?
  • What is your annual pre-tax salary?
  • What are you financial goals? 
  • Do you have any debt?
  • How much do you currently have in savings?

Over the course of the next 30 minutes, I learned several things from the CFP:

1. My asset allocations were much too conservative.  Prior to meeting with the CFP, my retirement annuity was 25% TIAA traditional, 30% equities, 10% real estate, 15% money market, and 20% bonds.  When I set up my retirement accounts, I selected a pre-determined allocation that was described as "moderately conservative."  I am risk averse, so this seemed like a good choice at the time.  The CFP told me that me that my allocations looked like they should if I were in my 50s, not in my 20s.  "If you're going to invest in money market or bonds at this stage of your life, you might as well put your money under your mattress." In my case, I should consider investing more heavily in equities.  Done.  I'm glad I learned this from the CFP, or I'd still be plugging money into fixed income instruments.  . 

2. 10% of my pre-tax income should go into my retirement account. I asked the CFP how much money I should save now in order to plan for a comfortable retirement in the future.  He replied that it depended on what type of retirement I envisioned.  However, a good rule of thumb was to invest at least 10% of pre-tax income throughout my working life.  In retrospect, I'm not certain if the CFP meant that my contribution should be at least 10%, or if the total contribution (including employer match) should equal 10%.  I wish I had asked.  I imagine he was referring to the total contribution, since employer contributions can vary so widely.  Currently, 15% of my gross income goes into my retirement account.  In the next few months, I'm planning to increase it to 20%.  I think it will become harder to save for retirement once we have more expenses (kids, mortgage), so now is the time to invest aggressively. 

3. I should have enough in savings to cover at least ten months of expenses.  When I met with the CFP, I had enough in my account to cover approximately four-five months of fixed expenses.  Given the uncertain market conditions and the dismal job market, the CFP encouraged me to save at least ten months of expenses.  Mr. W. and I are working to save at least a year's worth of fixed expenses (ie, things we can't cut out, like rent, car payments, insurance).

4. Consider opening a Roth IRA.  I'm still considering whether I want to open a Roth IRA, but it does seem like a wise choice. 

5. Everyone has an angle.  This isn't something the CFP told me, but something I gleaned after the fact.  When I told the CFP about my car loan, he didn't flinch.  In fact, he was a bit dismissive of transportation expenses in general.  At the time, I was spending more on transportation than I was spending on rent (granted, I lived in a crummy basement apartment with low, low rent).  For various reasons, it makes sense for me to live where we do, despite the long, expensive commute.  I was prepared to explain my rationale to the CFP because I expected him to be concerned by my high transportation expenses, or at least want to discuss it.  But he didn't.  "The way I see it," he said, "you'll always have commuting expenses.  Whether you're paying to repair a car, lease a car, buying a car, or paying for public transit, your transportation expenses will be relatively similar.  Transportation expenses aren't something I focus on."  I thought this seemed like a shortsighted conclusion.   But then it dawned on me: the CFP worked for my retirement plan provider.  He was focused primarily on one aspect of my financial position.  His company was in the business of "selling" retirement products.  Of course he wouldn't dwell on how much money I spent commuting to the workplace that would allow me to invest in his products! 

Have you spoken with a financial planner?  If so, what new insights did s/he provide?



  1. All of that sounds like reasonable advice to me! We haven't been to a financial planner in the last few years. We might again in the future but we are pretty happy with our plans right now!

    1. Holly, it seems like you guys have a very balanced, sensible approach to financial planning. I might meet with the financial planner again in the future, now that I have a few years under my belt and don't feel uncomfortable talking about financial decisions.