‘I have been propping her up for 15 years’: My niece, 35, is horrible with money. How can I help her become financially responsible?

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Dear Quentin,

My 35-year-old niece just got married for the second time. She is a horrible money manager and I have been propping her up for 15 years. However, her new husband earns a good blue-collar salary. Actually, it’s more of an hourly rate because he belongs to a union. 

I know nothing about union retirement plans, but they sound different from the standard savings plan. I told them I would give them some financial advice for a wedding present. But how on earth do I find someone who knows about maximizing union income? 

My own financial adviser has not been of any help, but he usually handles high-net-worth clients only. How do I find an adviser, or coach, for them? They live in Ohio if that makes a difference. Any help you can provide would be greatly appreciated.

The Aunt

Related: ‘Please don’t judge me’: I’m 54, and married with 5 kids. I have $20,000 in debt and $20,000 in mutual funds. I just inherited $10,000. How do I invest it?

Dear Aunt,

Don’t get hung up on your niece’s husband being a union man. 

Labor unions use collective bargaining to negotiate wage increases and other benefits, and members pay dues to belong to the union. Whether you hire a CPA or CFP, the end result will be the same regardless of whether they’re dealing with a union member or middle management. After all, most people work all their lives to get to the middle! 

You can start with the Financial Planning Association of Central Ohio, the Ohio Society of CPAs and/or the Accountancy Board of Ohio. Make sure whoever you hire has a fiduciary duty to your niece, their client, and does not sell products or services based on commission, but rather works on a fee-only basis (rather than fee-based). This helps eliminate bias in their decision-making.

Not all money managers are fiduciaries — that is, professionals who have to act in their client’s best interest under the Investment Advisers Act of 1940. Find out whether the prospective adviser is a fiduciary — rather than, say, a broker-dealer — and if they’re a member of the Financial Industry Regulatory Authority. Certified financial planners have similar codes of ethics.

In addition to whether they’re a fiduciary and how they get paid, here are some questions you should ask before hiring someone for your niece: What are your qualifications? How often will we meet? What is your investment philosophy? Do you have an independent custodian that will hold my investments? Do you have tax strategies that can help me in my journey?

You can also find out whether they are a member of the the National Association of Personal Financial Advisors or XY Planning Network, which are organizations for fee-only financial advisers. Don’t be afraid to ask them for client references and/or to sign a fiduciary oath. Similarly, ask about what they use as a benchmark for success.

A financial adviser will review your niece and her husband’s 401(k) plan (or equivalent), look at their investment allocation and make recommendations based on their risk tolerance, age, goals and other factors, whether they are union or non-union members. Their goal will be to invest, reduce expenditure and save for retirement.

Most union plans start with a defined-benefit pension plan. “Your employer makes regular contributions on your behalf, using a formula based on your years of service, hours worked, pay, or other factors negotiated by your collective bargaining unit,” according to John Hancock Retirement Plan Services LLC. 

The basics remain the same

“Many union jobs require physically hard work, so you may be wondering if you can afford to retire early (for example, by your mid-50s),” it adds. “While pension plans typically don’t start paying benefits until age 60 or 62 — and Social Security generally isn’t available until you reach age 62, at the earliest — having other savings may help you bridge those years.”

“As a union member, it’s very likely — 94% likely, in fact — that you have access to retirement benefits paid by your employers, whereas only 67% of nonunion workers have that same access,” John Hancock adds. “In most cases, you’re automatically enrolled when you begin working with the union.”

But the basics remain the same. Whether they have a defined-benefit plan or a 401(k), contributions are tax-deferred, meaning taxed when they make withdrawals. A financial adviser who works with them throughout their working life can advise them on whether it’s better to take annuity payments from their pension fund or a lump-sum payment.

Your niece has other investment opportunities in this high-interest-rate environment. The return on CDs has increased in the last couple of years, and rates are currently in the 4%- or 5%-plus range for jumbo CDs between three and seven years that require a minimum $100,000 deposit. That’s not a bad rate of return, if she’s not going to touch it.

A certificate of deposit is basically a time-limited savings account — and the interest you earn on your CD should be reported as taxable income to the Internal Revenue Service, unless the money is stored in a tax-advantaged account like an IRA CD. She could invest in the stock market, preferably in shares of companies with a higher return on equity and lower leverage.

Avoid individual stocks and opt for a mutual fund or exchange-traded fund. Research suggests young people become more risk-averse and lack confidence as the years go on. This may also be the perfect time to take advantage of her relatively low income, and make contributions to a Roth IRA, which are usually made with post-tax dollars. 

A friend of mine, who is an executive coach, recently told me that the people he counsels should have the answers inside of them. Don’t underestimate your niece because the same is true for her. When she starts to understand the myriad ways of investing and saving for retirement, she will begin to crystallize her short- and long-term financial goals.

Your niece is 35; This is a good age to start planning for retirement.

The Moneyist regrets he cannot reply to questions individually.

Previous columns by Quentin Fottrell:

I have $1.5 million in stocks and bonds. I asked my broker to convert my bonds to cash. He didn’t and my portfolio fell by $100,000. Can I sue?

My elderly parents are hoarders. I see them once a year. They say cleaning up their ‘junk’ will be my problem after they die. What can I do?

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