For many people, retirement savings is a matter of “set it and forget it.” They check off the box on their company’s pension or enroll in a 401(k) plan and dutifully divert a percentage of their paycheck to it, never reviewing how their money is invested or how best to withdraw it once they retire. Even if you’ve been successfully managing your own retirement investments for years, a financial advisor can ferret out opportunities (or uncover gaps) you might not find on your own. There’s an art and a science to retirement planning, and a good advisor will bring both to the table.
Still, you might be wondering: Do your current assets qualify for working with an advisor? Are advisors worth the expense? And what kind of advisor is right for your needs?
For the purposes of this article, we’ll assume that robo-advisors and online services are inadequate to the task and that you would best be served by an ongoing advisory relationship. Here are a few answers to the questions most commonly asked about planning your retirement with an advisor.
You don’t need millions of dollars to work with an advisor
Thinking you need to be a millionaire to warrant having an advisor help you plan your retirement? Think again. If you’re nearing your retirement milestone and have saved only half of that – or still have several working years ahead with less than a quarter of those savings – you’ll benefit from working with an advisor.
Depending on your career and life phase, you and your advisor will focus on strategies for either building or protecting your retirement savings – or both. Working with an advisor to anticipate some of the following factors and manage them as you go will save you money (and headaches) in the long-run:
Job changes. Promotions, relocations, and re-organizations often lead to hasty or uninformed decisions that can cost you tens of thousands of dollars in retirement savings.
Life events. Paying for college, caring for an ailing family member, or a marriage or divorce can all complicate your retirement savings plan.
Investment complexity. If you’ve diversified your investments with land, real estate, or private equity, or you’ve lived abroad and have retirement accounts in other countries, your tax optimization and disbursement strategies will be very complex.
Retirement readiness. As retirement nears, evaluating your savings and devising a disbursement strategy for making them last becomes critical – including the order in which you make withdrawals and how Social Security benefits figure into your strategy.
Working with an advisor can help ensure your retirement plan is not only optimized but also comprehensive enough to provide you with a buffer for those inevitable bumps in the road.
Different types of advisors serve different retirement needs
Advisors come with a variety of skills and areas of focus. The best place to start is with your financial situation and retirement goals so you can be sure you’ll get personalized services for your needs.
Financial Planners. If you need a retirement roadmap or want to review and strengthen your current plan, a certified financial planner (CFP) can offer guidance with retirement planning, tax strategies, estate planning, and insurance.
Asset Managers. If you’re already executing on a general plan but want more focused investment advice or help with optimizing or diversifying your portfolio, an asset manager may be right for you. Asset managers, also called investment managers, offer guidance with investment protection as well as portfolio growth and rebalancing.
Wealth Managers. Before you decide you don’t qualify as wealthy, consider this: “Wealth” can be defined simply as accumulated assets and doesn’t need to be measured in the millions. Some wealth managers, in fact, work with clients whose income-producing assets (IPAs) are as low as $100,000, and many asset managers offer wealth management services. Wealth managers add important services, such as estate planning, philanthropic planning, and charitable giving, to their retirement planning offerings.
Advisors might not be as expensive as you think
One of the most common concerns about working with an advisor is the expense. While pricing varies widely, advisors structure their fees according to a few broad patterns.
Financial planners will sometimes charge a set fee for creating a comprehensive, customized retirement plan (estimates hover around $1,000-$2,000), then charge a monthly retainer for providing occasional investment advice (usually a couple hundred dollars per month).
Asset and wealth managers generally take one of two approaches:
- Fee-only advisors can be a little more expensive, following an “unofficial industry benchmark” of about 1% of your invested assets – maybe a little more; maybe a little less.
- Fee-based advisors are compensated by the company or companies whose products they sell. They may be less expensive, but they are potentially more limited in their offerings.
If you decide to work with an advisor, make sure you ask what they charge – and why – before engaging.
Don’t underestimate the peace of mind working with an advisor can provide
The 2019 IRI Update on Retirement Preparedness shows a strong correlation between working with an advisor and feeling happy and confident about retirement – not surprising, as those who work with advisors tend to have the most comprehensive retirement plans in place. In fact, 70% of Baby Boomers surveyed who said they had financial advisors reported they were confident or cautiously optimistic about retirement, whereas only 30% of those without an advisor could say the same.
Related: "How Confident Are You in Your Retirement Plan?”
If you decide to engage an advisor, remember that this is a working relationship that will develop over time. As one advisor put it, “Retirement planning is a process, not an event.” You’ll benefit most from working with someone who understands the overall context of your retirement strategy, which will equip him or her to more effectively guide you through each phase of your approaching retirement.