Dear Liz: You frequently suggest consulting a fee-only financial planner, such as those who are members of the Garrett Planning Network, which seems like great advice. Can you provide any guidance on how much one should expect to pay for the services of this type of planner? We are a couple living in Los Angeles looking for a pre-retirement evaluation. That would probably include evaluation of existing investments, insurance needs, Social Security, long-term care, etc. How should we evaluate a quote of $3,000 for a full review estimated at 10 hours or $300 an hour?
Answer: The cost for a comprehensive financial plan varies depending on where you live and the planner’s experience level, among other factors. Nationally, the range is typically from $150 to $300 an hour, so $3,000 for 10 hours in Los Angeles is at the high (but not unreasonable) end of the scale, assuming the planner has several years’ experience.
Another way to get a feel for going rates is by interviewing a couple of other fee-only planners in your area. If the cost you’re quoted is dramatically lower, though, make sure the planner isn’t accepting commissions as well. Some planners are “fee based,” which means they accept both fees from clients and commissions on the products they recommend. You can ask for the planner’s Form ADV, a form filed with the Securities and Exchange Commission. Part II of this form contains information about how the planner is compensated.
Options for paying a big IRS bill
Dear Liz: I sold one mutual fund to invest in another fund with the same company. The tax statement shows this as a capital gain so large that I cannot afford to pay it all in one payment to the IRS. This is a disaster. Is there anything I can do?
Answer: Absolutely. File your tax return on time, since the failure-to-file penalty is much higher than the failure-to-pay penalty. Pay as much as you can when you file the return, and then consider your options.
If you can come up with the remainder within 120 days, then do so. There’s no need to arrange a formal payment plan, but you will owe interest and penalties on the balance until it’s repaid.
If you can’t pay within 120 days, you can ask for an installment agreement. You’ll find an application in most tax software or you can find Form 9465 on the Internal Revenue Service website. You also can try calling the IRS at (800) 829-1040, but prepare for a long time listening to hold music. Budget cuts have left the agency severely short-handed and wait times are considerable.
You also should consider borrowing the money from another source, such as a low-cost personal loan. Another option is to charge what you owe to a low-rate credit card. You’ll pay a small fee for the privilege, but ultimately it may be cheaper than paying interest and penalties to the IRS.
Fixing a wounded credit score
Dear Liz: My wife and I co-signed on our daughter’s mortgage, then the home went into foreclosure. My wife and I have no debt and a net worth that exceeds $1 million. We purchased our cars with cash and the single credit card we have with a $35,000 limit is paid off in full each month. Since the foreclosure, our FICO score has been in the “fair” range. We have no plans to take out a loan for anything and plan to continue our “cash and carry” lifestyle. However, the low FICO is a little disconcerting. It appears the only cure is time (measured in years). We welcome any additional guidance.
Answer: You can’t fix your wounded FICO scores overnight, but you could speed up your credit score rehabilitation by adding one or two more credit accounts to your mix. At least one of those accounts should be an installment loan, since scoring formulas want evidence you can handle different types of credit. If you don’t want an auto or personal loan, then consider a “credit builder” loan that puts your payments into a certificate of deposit that you claim when all the payments have been made. Credit builder loans are offered by credit unions and some online lenders.
Is it worth the effort, even though you don’t plan to borrow? In most states (although not California), credit scores heavily influence what you pay for auto and homeowners’ insurance. People who don’t have the best scores can pay hundreds of dollars more each year for coverage. Credit scores also may be used to determine deposits for utilities and wireless service. If you need to rent an apartment, your credit scores matter as well.
If none of those are a concern, you can continue to take the slow road to rebuilding your credit, since the foreclosure will fall off your credit reports after seven years. If you want to speed things along, though, another credit account or two should help.