Free advice a good start

September 17, 2006|By Carolyn Bigda | Carolyn Bigda,Tribune Media Services

Everyone needs some help from time to time. And planning for retirement or other long-term investments can be one of those moments.

As a result, employers and investment companies are starting to offer free advice - in some cases, even to small-fish investors.

The big question: Is the advice helpful?

What to expect:

I called Fidelity Investments, the mutual fund company where I have retirement funds.

Fidelity allows investors to call a toll-free number to speak with a "retirement specialist," a licensed broker familiar with the fund company's services and investment principles.

The specialist and I worked through Fidelity's online retirement planning tool, which shows how much of a nest egg you are projected to accumulate based on your savings rate and asset allocation.

I had to make some wild assumptions about my expected Social Security benefits and the monthly income I would need in retirement. You'll find help at the online tool with these estimates (which can be valuable if you're just starting to think about these things).

But keep in mind that they are estimates. Fidelity calculates your retirement income, for instance, as a percentage of your current salary. While it assumes regular inflation-adjusted pay raises, it doesn't consider the big pay jumps younger workers often receive.

Still, the end result showed that I was saving enough if I wanted to retire by age 67, and the retirement specialist was helpful in explaining the results and reviewing important investment concepts, such as asset allocation and rebalancing.

What not to expect:

Feeling pretty good, I then called Sean Sebold, a certified financial planner in Naperville, Ill., for his take on the numbers. While Sebold has a vested interest - he makes a living by offering financial advice for a fee - he provided a good reality check.

For one, the online retirement tool makes projections based on one point in time. "A month from now, you could be married or have a different job, which changes everything," he said.

In other words, these free tools are a starting point for your planning. But you'll have to return and re-input data as life runs its course.

You can't be too specific, either. Was I in the best mutual funds based on my risk tolerance, savings rate and investment horizon? The retirement specialist explained how to search for funds and find information on past performance and fees. But he couldn't offer specific fund recommendations.

All of which means that free advice is not complete advice: You can't shortchange your investment research, or lose a healthy skepticism.

Most fund companies, for instance, don't recommend funds outside of their lineup.

"You may have to be comfortable with putting all your eggs in one basket," said Christine Benz, director of mutual fund analysis at Morningstar Inc.

And for more personal advice, you'll have to cough up a fee unless you have amassed big accounts.

T. Rowe Price charges $250 for its personalized advisory planning service if your assets fall short of $500,000, or as a new customer you invest less than $100,000. At Vanguard, you pay $1,000 if you're an existing customer with less than $250,000 invested, or if you are a new customer with less than $100,000.

There's a reason for the cutoff: "Generally, when you reach that threshold, that's when you have a need for more advanced planning tools," said Vanguard spokeswoman Melissa Nigro.

Plus, at that point you may have more concrete numbers for computing a retirement plan. And in the meantime you can use the general advice to help you become comfortable with doing research and using the tools available to you online.

Carolyn Bigda writes for Tribune Media Services

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