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Is your Advisor a Fiduciary?

Posted on October 30, 2020August 21, 2025 by Scott M. Peterson, ChFC®

What is a Fiduciary?

A fiduciary is a person or organization that acts on behalf of another person or persons, putting their client’s interest above their own in all instances. Being a fiduciary requires being bound, both legally and ethically, to act in their client’s best interest. In essence, they are the guardians of their client’s money.

Can a fiduciary receive commissions?

Commissioned salespeople are not considered fiduciaries because they are representing a product or a company, not the individual to whom they are selling a product, and they are not bound by the higher ethical standard of a fiduciary. Commission salespeople follow a different suitability standard in which the transaction must be suitable for a client, not necessarily the best solution. The commissions they earn can create a huge conflict of interest which effectively eliminates them from the fiduciary standard.

All too often, individuals trust advisors that promote themselves as fiduciaries, only to get talked into buying high-commission/high-fee annuities or real estate investment trusts by these same advisors as these advisors fail to live up to fiduciary standards. Sadly, many investors fall prey to the unethical, yet legal, practices of financial advisors who promote themselves as trusted fiduciaries as a door opener to selling expensive, inappropriate, big commission products to the unsuspecting public.

Are all financial advisors fiduciaries?

No, not all financial advisors are fiduciaries.

Unfortunately, some investment advisors are allowed to wear multiple hats at the same time, which allows them to be fiduciaries for a part of a client’s money that they manage, and a commissioned salesperson for the balance of the client’s money. It is not right, it makes no sense, but that is how it works.

Who regulates – or better said, doesn’t regulate – Advisors?

The Securities and Exchange Commission (SEC) typically oversees the activities of the fee-based fiduciary while another regulator, the Financial Industry Regulatory Authority (FINRA) oversees the activities of the broker-dealers who are typically those persons and firms that are commissioned salespeople. Additionally, the State Insurance Commissioners oversee the sale of commission-paying insurance products such as annuities within their respective states.

The problem lies in the fact that the SEC is only interested in the activities of the advisors relating to the advisor’s roles as fiduciaries and does not pay any attention to the non-fiduciary sales activities that are being carried out by the advisors.

So, the sale of commissioned securities and insurance products by a fiduciary is not their concern as they view these activities outside of the scope of their jurisdiction. The deception takes place when advisors advertise themselves as fiduciaries, draw clients into their offices, then act as fiduciaries for a small amount of the client’s assets (10%) and then proceed to sell the client big commission products that are not in the best interest of their clients with the rest (90%) of the client’s money.

As I listen to the radio and see advertisements online, it is usually these bait and switch types of advisors that are promoting themselves as fiduciaries. Buyer beware, you need to do your homework.

Is my advisor a Fiduciary?

1. Check out the firms Form ADV and CRS

Form ADV and CRS are the uniform documents filed by investment advisors to register with the SEC. They will let you know how a firm is compensated and will identify conflicts of interest such as receiving commissions in the sale of investments and/or insurance products. You can find a firm’s Form ADV and CRS on the SEC website. If the firm, or advisor you are investigating, earns a commission by the selling of an investment or insurance product then I would suggest avoiding that advisor. They may be “fee-based” which means they act as a fiduciary for some of the client’s money they manage but in the end, they are commissioned salespeople.

2. Know that any product that has a surrender charge, or limits your access to your own money, pays a commission to a salesperson

When an insurance agent sells an annuity, they get paid an upfront commission typically of 6-7%. So, if the agent talks somebody into investing $100,000 in an annuity, the insurance company pays the agent a 6% commission or $6,000. So how does the insurance company protect themselves from losing money on this transaction?

Insurance companies place a surrender charge on the annuity that keeps the purchaser from liquidating the annuity for a specified number of years, or at a large cost if the annuity is surrendered prior to when the stated surrender charge expires. This allows the insurance company to recoup the upfront $6,000 commission they paid by collecting large management fees for a number of years or the investor reimburses the insurance company in the form of a surrender charge if they surrender the product early.

You are unlikely to get stung as long as you never place your money into a product that charges a fee to withdraw your own money or that imposes a timeframe that limits your ability to withdraw your money.

3. Search Google for a list of “fee-only” investment firms in your area

“Fee-based” advisors are not always true fiduciaries as part of their income comes from selling commission-paying products. Fee-only advisors are compensated by an agreed upon fee and don’t accept, or are even licensed to receive, commissions.

Unfortunately, I don’t see the regulatory environment changing anytime soon and vulnerable investors will continue to be duped by advisors, who claim to be fiduciaries but fail to act as fiduciaries by selling high commission investments and annuities to the public. This travesty will continue as long as the multiple regulatory bodies and insurance commissioners limit their focus on their own perceived jurisdictional responsibilities while ignoring the big picture of what is taking place with the client’s investment portfolios.

If you want an advisor that is truly a fiduciary, one that always acts in your best interest, then it’s critical to understand the potential conflicts of interest that exist in the investment industry before hiring any advisor. My best advice is that you should limit your search for a fee-only advisor whose investment philosophy matches your own.

How to Pay for Health Insurance in Retirement

Posted on September 1, 2020August 21, 2025 by Mark Whitaker, MS, CFP®, CRPC

Bob and Patricia are 60 years old and would love to retire as soon as possible. It’s not uncommon to meet people like Bob and Patricia who have been saving diligently, setting money aside into their 401(k)s, making wise investments, and living below their means with a desire to transition into retirement as early as possible. Unfortunately, health insurance for them to retire before age 65 can now cost as much as $2,000 per month for a high deductible health insurance plan, even for someone who has significant savings, this additional expense can make early retirement unaffordable.

In the past, many people were able to leave the workforce and continue to receive health insurance through a former employer. These retiree health insurance plans would bridge the gap between the time that someone left the workforce and the time they began receiving Medicare benefits at age 65. Unfortunately, most of these benefits, along with other retirement benefits like generous pensions, have gone the way of the Dodo bird.

How to Pay for Insurance in Retirement

If you are one of the few that still have these benefits available to you, count yourself very fortunate. So, is there a way to retire before age 65, and purchase affordable health insurance? The answer is yes! But it requires special planning.

The Affordable Care Act

The Affordable Care Act, also commonly known as, “Obamacare” contains a provision that provides health insurance subsidies to Americans below certain income levels. To qualify for a health insurance subsidy or discount, your household income cannot be more than four times the federal poverty line. The federal poverty line is based on the number of people in your household. Looking at Table 1., four times the federal poverty line ranges from $49,960 in 2020 for a household of one, all the way up to $138,360 for a household of six. Since Bob and Patricia have a household of two, they would need to have an income below $67,640 in 2020 to qualify for a subsidy, and the subsidies are significant.

Table 1. FEDERAL POVERTY GUIDELINES (YEAR 2020)
# In Household	Federal Poverty Line (FPL)	2-Times (FPL)	3-Times (FPL)	4-Times (FPL)
1	$12,490.00	$24,980.00	$37,470.00	$49,960.00
2	$16,910.00	$33,820.00	$50,730.00	$67,640.00
3	$21,330.00	$42,660.00	$63,990.00	$85,320.00
4	$25,750.00	$51,500.00	$77,250.00	$103,000.00
5	$30,170.00	$60,340.00	$90,510.00	$120,680.00
6	$34,590.00	$69,180.00	$103,770.00	$138,360.00
http://www.healthreformbeyondthebasics.org/wp-content/uploads/2019/10/REFERENCE-GUIDE_Yearly-Guideline-and-Thresholds_CoverageYear2020.pdf

For example, Bob and Patricia, Utah residents, would receive $1,345.29 per month if they reported an income of $65,000 for the year. If Bob and Patricia were to choose a high deductible Bronze plan (See Table 2.) that would typically cost about $1,227 a month. Applying their subsidy of $1,345.29, they wouldn’t have to pay a monthly premium. Now let’s say they select a gold plan that costs $2,403 per month; they would only have to pay $1,058 after their subsidy is applied. That’s a savings of over $16,000 a year in healthcare expenses.

Table 2. EXAMPLES OF HEALTH INSURANCE PLANS AND IMPACT OF SUBSIDIES
Plan	Bronze Plan	Silver Plan	Gold Plan
Monthly Premium	$1,227.40	$1,856.76	$2,403.36
Subsidy	$1,345.29	$1,345.29	$1,345.29
After Subsidy	$0.00	$511.47	$1,058.07
Quotes ran August 2020 at www.healthcare.gov. Based on a household of two with an annual modified adjusted gross income of $65,000

You might be thinking, this sounds great, but I’m not sure I’m willing to restrict myself to only living on an amount that’s below the threshold to qualify for these discounts.

Well, here’s where the planning comes in. The discounts are based on your modified adjusted gross income (MAGI). We need to be careful not to confuse this with cash flow coming into the household.

Modified Adjusted Gross Income (MAGI)

Let’s look at how the tax code defines modified adjusted gross income for health insurance – to determine your modified adjusted gross income, the tax code looks at your adjusted gross income (AGI) and adds back in a few income sources that are normally not included. Three of the most common income sources that must be added back into AGI to come to the MAGI calculation are:

Excluded foreign income
The Non-taxable portion of Social Security
Tax-exempt interest

Once MAGI is calculated, there are ways to keep your income below the 400% of the federal poverty line income limit that would allow you to qualify for subsidies and still have the monthly cash flow you would like.

Let’s return to the case of Bob and Patricia and see how this would work. Let’s say that Bob and Patricia have saved $3,000,000 for retirement. These savings include pre-tax accounts like 401(k)s and IRAs, tax-free accounts like Roth IRAs, and after-tax brokerage investment accounts. Bob and Patricia decide that they would like to have $100,000 per year in income. Bob and Patricia can control how much of their $100,000 income are included in their AGI by choosing which accounts they take distributions from.

Example: Bob and Patricia decide to take out $50,000 from Bob’s IRA over the year for income. They then supplement their IRA income by taking out $50,000 from Bob’s after-tax brokerage investment account. Bob is careful not to sell stocks that have embedded capital gains, which would be added to their MAGI. This means that Bob and Patricia will be able to enjoy $100,000 per year of income but only report about $50,000 on their taxes. This would allow them to then qualify for the significant health insurance subsidies.

This example doesn’t consider things like capital gains, interest, or dividend income that would likely be applicable in their case. These items need to be considered, so careful planning is required. However, the point remains that this strategy would allow someone to enjoy the amount of income they prefer, while simultaneously qualifying for significant subsidies for health insurance.

One last note on health insurance subsidies for early retirees. When you apply for health insurance during open enrollment, you will have to estimate your income or MAGI for the following year. For Bob and Patricia, this means that they would state their income on the application as $50,000 using the numbers from the example above. You might ask, what if my income ends up being different from my estimate? Any difference in income between your estimate and actual income will be reconciled when you file your taxes for the following year. If your actual income is higher than the estimate you used on your application, you would be required to pay back a portion of the subsidy you received. If your actual income is lower than your estimate, you may be eligible for a higher subsidy, which would be paid to you as a tax credit.

In my experience, this isn’t much of an issue unless your actual income is so high that you wouldn’t have qualified for a subsidy at all. In this case, you would be required to pay back the entire subsidy you received throughout the year. In Bob and Patricia’s case, this would mean coming out of pocket $16,000 to pay back the subsidies they received based on their income estimates.

Careful planning is the key. If you understand and follow the rules you can receive significant benefits, if you mess up, you’ll go from thinking you’ve saved money to having to pay out large sums at tax time.

There are other aspects of this planning strategy for early retirees that I haven’t mentioned in this article, but this is a good start. I would recommend you consult with a qualified financial professional that is knowledgeable in the detailed tax rules associated with the Affordable Care Act before attempting to implement this strategy. If you’ve prepared well, early retirement is an achievable goal. Health insurance is a significant expense, that can derail your ability to retire early. However, there are powerful retirement income planning strategies available to the well-informed to help you retire with confidence.

Learn more about our Perennial Income Model™ and how it can help you in retirement.

What Role Will Social Security Play in My Retirement Income Plan?

Posted on July 23, 2018August 21, 2025 by Scott M. Peterson, ChFC®

Social Security is the anchor of a retirement income plan

Past generations took little thought regarding how they would maximize their Social Security benefits. After all, it really didn’t matter how and when benefits were claimed if the retiree lived only a short time after retiring. Today, with the real possibility of living three decades without a job or paycheck, retirees need to do all they can to squeeze the most out of Social Security.

Over its almost eighty years of existence, Social Security has evolved. It now consists of hundreds of codes, and tens of thousands of pages of rules and regulations. Because of this, most eligible recipients do not understand the benefits they are entitled to receive. Consequently, there are millions of dollars of Social Security benefits left on the table each year.

While Social Security is complicated, it is essential to make informed choices regarding both when and how to apply. This will ensure you will get the most from the system. After all, you and your employers have contributed to this future source of monthly income since the day you started working. Understanding how the system works and creating an individualized plan to maximize this valuable benefit could mean the difference in hundreds of thousands of dollars of retirement income.

Five important benefits of Social Security:

1. Predetermined amount of income

By the time you come to the end of a career, your Social Security income amount is pretty well known. The benefit amount is based on both your earnings history and when you decide to apply for benefits. The accuracy of the benefit estimation makes it easy to build the rest of your retirement income plan around a reliable number.

2. Reliable income

Once you start getting Social Security benefits, the amount of income you will receive is set. It is highly unlikely that reforms to the system will cause benefit cuts.

3. Income that lasts for a lifetime

Social Security is one of the few sources of income that can be relied upon for a lifetime. It is an especially valuable benefit considering the long life expectancies of today’s retirees.

4. Inflation-adjusted income

Social Security benefits are increased each year based on the previous year’s inflation rate, which is measured by the consumer price index. These cost-of-living adjustments help retirees keep up with the ever-increasing cost of goods and services.

5. Survivor benefits

Although Social Security checks stop at the death of the recipient, monthly benefits can continue to be paid to surviving spouses and minor dependents.

The Sustainability of Social Security

There is a lot of misinformation that surrounds the sustainability of Social Security, but the boring truth is that Social Security is not going away anytime soon. Each year, the Congressional Budget Office (CBO) reports to Congress the fiscal status of Social Security. The latest report states that if no changes are made to the system, the Social Security Trust Fund, along with income collected from our taxes, will allow Social Security to pay all its obligations until the year 2034. If no adjustments are made to the Social Security system between now and 2034, there will only be enough money in the system to pay 79% of the promised obligations after 2034.

Minor adjustments to the system now could extend the viability of Social Security for years into the future. Raising the age requirements of future claimants, changing how the cost of living adjustment is calculated, or raising the maximum earnings subject to the Social Security tax are all viable measures that should be considered to strengthen Social Security. To date, these common-sense solutions have not been implemented because anytime a politician has suggested a change to Social Security it has proven to be a political boondoggle. Like any financial problem, the sooner the future projected shortfall is addressed, the easier it will be to manage. Making decisions about claiming Social Security benefits based on the false assumption that these benefits are disappearing is both dangerous and irresponsible.

With the ever-changing rules and regulations of Social Security, a list of commonly asked questions such as how much you can expect to receive, spousal benefits, and when to apply can be found here. The answers to these questions will frequently be updated to help you navigate the minor changes to the current Social Security system.

You can also visit the government Social Security website and select the ‘Retirement’ tab to receive assistance on things such as estimating your benefits, requesting a Social Security Statement, and applying for benefits online.

Social Security is responsible for 42% of today’s retirees’ income. While it does not provide enough income to retire on, it does provide a solid foundation upon which a sound retirement income plan can be built. A little time and effort can pay significant dividends when deciding when, and how, to receive Social Security benefits.

If you are getting close to retirement and will have at least $1,000,000 saved at retirement, click here to request a complimentary copy of Scott’s new book!

Best Tax-Friendly States for Retirees

Posted on July 12, 2018August 21, 2025 by Mark Whitaker, MS, CFP®, CRPC

If you’re approaching retirement age, you may be considering a move to a more retirement-friendly state, particularly if your current state of residence imposes numerous taxes on social security, pensions, and other retirement income. While making the decision to relocate is not something that can be done lightly, there are a variety of options available nationwide that may allow you to retain more of your retirement income.

Of course, taxes alone are not the only reason to relocate; climate, proximity to health care, cost of housing, ability to create an emergency fund, and property taxes all need to be taken into consideration.

What are the Most Tax-Friendly States for Retirees?

What are the most tax-friendly states for retirees? Below, we’ve gathered a list of states that provide a great environment for those looking to retire.

Alaska – While it may not be the first choice of retirees, Alaska offers an excellent environment for retirees with neither Social Security nor pensions taxed. Another advantage is the lack of state income tax and sales tax.

New Hampshire – Retirees residing in New Hampshire are exempt from state taxes on Social Security and pay no taxes at all on pensions or distributions from their retirement plans. As an added bonus, there is no state sales tax either. Homeowners, however, need to take into account that property taxes are higher than most other states.

Nevada – There’s a reason why so many retirees gravitate to Nevada, and it isn’t for the slot machines. Nevada has no state income tax, so Social Security and other retirement income are tax-free. There is a sales tax in Nevada, though food and prescription drugs are currently exempt. Property taxes are reasonable, however, there are no breaks given to those over the age of 65.

Florida – Florida remains popular with retirees for a lot of very good reasons. With no state income tax, residents are able to retain more of their Social Security and retirement income. One downside is the state’s sales tax rates that can go upwards of 7% in some areas. However, property taxes are slightly below the national average, with some counties offering homestead exemptions to homeowners over 65.

Wyoming – While Wyoming may not be on anyone’s radar when it comes to retirement, the state offers a lot of benefits to retirees, including no state income tax. Sales taxes are also relatively low in Wyoming, and property taxes are minimal.

Mississippi – Social Security and other retirement income, including retirement plan withdrawals, and public and private pensions are exempt from state income tax in Mississippi. The state sales tax rate is high at 7%, and the state also imposes sales tax on groceries though other items such as prescription drugs and utilities are exempt. Property taxes are also some of the lowest in the U.S.

Other states with no state income tax include Texas, Washington, South Dakota, and Tennessee. While a lot of factors need to be taken into consideration when looking to relocate, these states make it just a little easier on your wallet, so you can enjoy your retirement stress-free.

Resources

https://www.kiplinger.com/slideshow/retirement/T006-S001-most-friendly-states-for-retirees-taxes/index.html