On the Cheap? What to do about retirement planning?

There is an interesting article on Smart Money about a couple of relatively new services provided by Vanguard and T. Rowe Price that should help those on a serious budget, do some proper investment planning for retirement. There is one from Fidelity mentioned as well, but it is backed up by an automated tool versus a warm-blooded human. While I'm always cautious about taking retirement planning from a big house like this, you should be able to get some good info out of them without necessarily committing your money to their funds --that's the goal at least.

The services supposedly provide personal consultations and annual check-ups with a dedicated personal advisor. Vanguard advisors charge a one-time $1000 and are CFPs and T. Rowe Prices advisors only charge a one-time $250 and only work under the supervision of a CFP. Despite the higher price, I'd go with Vanguard if you can afford it. Here is more about how they work from the article:

"How the services work: Investors provide detailed information on their financial situation online or by mail. A financial advisor at the fund company reviews it and puts together a retirement plan. Once the investor receives the plan, he or she gets a call from the advisor to talk about it and make changes, if necessary."

Once you have the plan, you are golden. Again, the key is not to have the advisor execute the plan by buying their own funds. If you're comfortable investing, take the plan and find equivalent investments in the same asset classes, or if you trust the recommended funds, go ahead and let them buy into some of them according to their plan. Depending on what they come up with, it would be interesting to compare their recommendations versus their "Target Retirement" mutual funds.

The article does call out a few drawbacks to the services as well:

"Another potential drawback: These services leave it up to the investor to put in their current financial information and make important predictions like their expected retirement spending, says Christopher Van Slyke, a fee-only CFP in La Jolla, Calif. There's a chance they may misunderstand the questions or give the wrong information, he says. "Without experience, it's likely they'll make mistakes."

An individual investor may easily underestimate his or her retirement income needs, for example, by not factoring in things like medical expenses. (If you don't make your own retirement income suggestion, Fidelity's tool will calculate one as 85% of your current income, adjusting for future inflation. T. Rowe Price advisors will suggest 50% of your current income.)"

I suspect most people that read my blog are not the target for these kinds of services, but perhaps they are good for an aging parent or a brother who may not have the biggest interest in investing for retirement. These are the people most likely to benefit from these kinds of services. If anyone has used these services, I'd love to hear about it. Lets us know.

(Photo courtesy of: Jan Tik)