10 Finance Tips You Might Not Hear From Your Financial AdvisorYou

These finance tips should be common knowledge, but they're not.

Man looking through binoculars for good financial advice.
If your financial advisor is only compensated by the sale of financial products, then you may not hear about these 10 things. Caiaimage/SamEdwads/Getty Images

Financial planning advice is not always objective. Many financial planners are compensated from the sale of investment or insurance products. Unfortunately some advisors have more sales training than financial planning training. That can lead to some smart advice that you rarely hear about. Here are ten things that financial advisors often overlook.

1. Open an HSA account instead of an IRA

An HSA, or Health Savings Account, goes hand in hand with a high deductible insurance policy, so it isn't an option for everyone.

However, if it is an option for you, it might be better to fund your HSA each year than your IRA account. Why? Money goes in tax-deferred and comes out tax-free for qualified medical expenses, and medical expenses are a certainty in retirement. If you use IRA withdrawals, the money you take out is taxable. If you had an HSA account those same withdrawals for medical expenses would be tax-free.

2. Take your pension as an annuity - not as a lump sum

It is not too difficult to create a simple spreadsheet that helps you see whether you should take your pension as a lump sum or in the form of annuity payments. With the lump sum, it can be difficult to generate the same amount of safe, life-long income that the annuity choice may offer you. You can compare the potential outcomes of both options over your life expectancy to make an objective decision. Each plan will vary so there is no one-size-fits-all rule -  which means you have to do an analysis based on your available pension choices, age, and marital status.

Don't let anyone convince you a lump sum is best unless you've seen the math.

3. Roth IRAs deserve a second look

A colleague of mine calls Roth IRAs the "greatest investment known to man". I say "Roth IRAs, not diamonds, are a woman's best friend". Why? Numerous reasons! You can withdraw original contributions at any time without tax or penalty.

Money inside a Roth grows tax-free. When you take withdrawals, Roth distributions do not count in other tax formulas, like the one that determines how much of your Social Security is taxable, or the one that determines how much in Medicare Part B premiums you will pay. Unlike regular IRAs, at 70 ½ you are not required to take distributions from a Roth. Bottom line: above and beyond the amount of any employer match you receive, see if you are eligible to contribute to a Roth IRA or if your employer offers a Roth 401(k) option.

4. Use Index funds

You might be surprised to know that if you want to find the best performing mutual funds there is one thing you can look at that will consistently help. It is the fund's expenses. Funds with low fees outperform their higher fee counterparts. Index funds have some of the lowest fees in the industry. Why pay more for the same basket of stocks or bonds when you could own them for less by using an index fund? I cannot think of any reason why.

5. Cancel Your Life Insurance

Life insurance is important when someone is financially dependent on you. As you near retirement, your income and your spouse's future retirement income may be secure no matter what happens.

You may not need life insurance once you are retired. You might still want it because you want to provide for someone, and that is fine. It's important to know why you are paying for something, and objectively decide if it is worth spending money on if no one is financially dependent on you any longer.

6. Buy I-Bonds, not a fixed annuity

For years, I went along oblivious to a fantastic investment choice: I-Bonds. They make a great alternative to CDs, money market funds and savings accounts. You get tax-deferred, inflation-adjusted interest with complete liquidity after owning them for twelve months. I-Bonds cannot be purchased inside a brokerage account, so a financial advisor can't charge on them or make money selling them. That might be why you don't hear about them more often. Bottom line: I-Bonds are one of the best safe investments you can make.

7. Social Security can make more money for you than they can

Making a thoughtful decision about when to start your Social Security benefits might add more "return" to your total retirement income than an investment advisor can ever add by picking stocks. Spend more time on Social Security planning and other forms of financial planning, and less time on investment analysis, and you'll likely end up with more money.

8. Leave your 401(k) plan

Most of the time I think people are best off consolidating their retirement accounts into one IRA at or near retirement. There is an exception though. If you leave your employer at or after age 55, but you are not yet age 59 1/2, you may be better off leaving your 401(k) plan where it is until you reach age 59 1/2. One of the 401(k) retirement age rules will allow you access to your money in this circumstance without being subject to the early distribution penalty tax that normally applies to withdrawals taken before age 59 1/2.

9. Stocks might not be safe in the long run

Lots of graphs and charts show that stocks are less volatile over long periods of time; meaning in one year the stock market may go up 40% or down 40% but over twenty year periods of time the return is more likely to range from a low of zero to 2% to a high of 10-14%. What these charts and graphs don't explain is that even over longer periods of time, like twenty years, stocks may not have a higher return than safer alternatives. They may not lose you money, but just because it's the stock market that doesn't mean it will outperform less risky choices. People assume that stocks will always deliver higher returns than safer alternatives if you own them long enough. This assumption is not true. If it were true, stocks wouldn't be considered risky.

10. Rearrange investments to be more tax-efficient

Many financial advisors manage one account for you rather than looking at all your investment accounts holistically. For example, maybe you have a 401(k) and a non-retirement investment account you inherited that an advisor handles. They may manage your non-retirement account without considering your 401(k), and you get a 1099 each year that reports the interest and investment income from this account. Sometimes these investments can be structured to be more tax-efficient. For example, it might be more tax-efficient to locate more bonds in your 401(k) account and more growth investments in your non-401(k) account. When you have multiple accounts such as an IRA, 401(k) and non-retirement savings, there are numerous reasons to look at your investment allocation holistically rather than each account on its own.