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Financial Q & A

Created date

February 27th, 2009

With the economy making headlines every day, it is becoming a common topic of conversation around water coolers and dinner tables. All the financial chatter has made many people realize they have more questions than answers when it comes to money and retirement.

To shed some much-needed light on the matter, we asked dozens of financial advisors to share the questions most commonly asked by older adults. Here s what they had to say:

Will I be able to retire and how much money will I need?

Virginia-based financial planner Frank Boucher says the good news is that you can retire, if you are realistic in your planning. Boucher says people often make the mistake of underestimating how much money they will need during retirement.

"Often new retirees want to travel a lot or incur other expenses that they just didn t have time to do when they were working," Boucher says. He advises working with a trusted financial planner to determine how much money you ll really need to achieve your retirement goals.

How should I choose a financial advisor?

First and foremost, your financial advisor should be someone you trust with your retirement savings. That said, it s important to know how your advisor is paid. Samuel Scott, a planner with Sunrise Advisors in Kansas, says there are three types of financial planners: fee-only, fee-based, and commission-based.

Scott says fee- and commission-based planners are compensated in part by the investment products they sell. "This can often lead to a conflict of interest with their client," he says. Scott recommends choosing a fee-only advisor, who is paid simply for offering objective investment advice.

What is "risk-adjusted asset allocation"?

Recent turmoil on Wall Street sent many people s 401(k) plans into a nosedive, causing many to wonder whether they should invest any money in stocks. The short answer, according to most financial advisors, is yes. "Risk-adjusted asset allocation" simply means investing a percentage of your money in stocks (as opposed to less volatile investments like bonds) based on your personal tolerance for risk.

"Unfortunately, all of us tend to believe that our tolerance for risk is high when markets are acting rationally," says Norris Edmonson, a financial advisor in Georgia. Stocks can yield high returns, but they can also lose value quickly as we have seen in recent months.

That doesn t mean you should yank all of your money out of equity investments, but it does mean you should carefully consider how much risk you can handle based on your age, lifestyle, and financial goals.

Should I buy annuities?

Annuities are commonly sold by insurance companies. Customers invest money with the insurance company (either in a lump sum or through monthly payments) and then receive investment income at a later date based on varying contract terms. Annuities can be difficult to understand and have a bad reputation with some financial advisors.

Tom Adams, a CPA with Mentor Capital Management Inc., in Illinois, says annuities are "oversold" because many of the agents selling them earn substantial commissions. He says annuities can be beneficial to retirees but cautions people to work with a fee-only advisor and to check the fine print for hidden costs, high annual expense ratios, and costly "surrender charges."