No matter where you are in the retirement process, there are many questions that a financial advisor can help you answer. If you’re still working, an advisor can help you decide how much money you’ll need to live on, and that information can help you determine a retirement date. If you are already retired, you may want to find out about different investment and withdrawal strategies to minimize the chances of running out of money too soon. You might have questions about when to start Social Security, how best to do estate planning, whether to move to a smaller house, how to stretch your travel dollars, and so on.
In order to make the best pre- and post-retirement financial decisions, you need three things (and you need them in writing):
1) an accurate snapshot of where you are right now financially,
2) a vision of where you want to be in the future, and
3) a plan to get you from here to there.
The first one is relatively easy and could be done on your own; you don’t need any particular financial expertise to create your snapshot. Start with a very simple list – you can use a spreadsheet but it’s not required – with four categories: assets, debt, income, and expenses. The first time you do this, it may take a bit of effort to collect all the information and you may need to make some estimates. But try to make the list as complete and as accurate as possible. No matter what age you are or at what point you are in or after your work life, seeing it all on one sheet of paper really helps in getting your head around it.
Creating the vision isn’t very hard either; in fact, you probably already have one. Want to retire at a certain age? Want to pay off the mortgage on your house or eliminate other debt? Want to send your grandchildren to college? Want to leave money or other assets to your heirs? Want to reduce your taxes? Want to have a local hospital put your name on a new wing? Write it all down.
You can do these two tasks yourself, although having a financial advisor can be very motivating to get these things actually done. But it is the third item on the list – creating a financial plan that will get you from here to your vision – that will really prove the advisor’s worth. This is where you need someone who is very knowledgeable about all of the financial options, all of the ins and outs of various strategies, and all about the risk/benefit calculations you’ll need to make.
The usefulness of a financial advisor seems pretty clear. But what about the expense? There is a common misperception that financial advisors are only for the rich. Absolutely not so. Fees and services vary over a wide range and it’s entirely possible to find a good advisor that fits your budget.
Types of financial advisors
There are basically three types of financial advisors. The first is a fee-only consultant, meaning that just like other consultants, he or she is compensated based on the time it takes to collect your information and to give you advice. These advisors may be paid by the hour, the month, or could even be on a retainer for a year or more. A typical flat fee for a specific task, such as looking over your investment portfolio and making suggestions based on your goals, ranges from $1,000 to $2,000. A full financial plan could cost more.
The second type is also fee-only, but in this case, instead of billing you directly, the advisor will manage your investment portfolio and will be compensated based on a percentage of that portfolio. One or two percent a year is typical, although bigger portfolios usually generate smaller percentages.
The third type of advisor is a salesperson, acting on commission, also known as a “registered representative.” He or she may sell insurance, stocks and bonds, and other financial products. There is usually no additional fee involved.
Whatever type you choose, it’s important to make sure he or she is board-certified (yes, just like a doctor) by the Certified Financial Planner Board of Standards (CFP Board). Also, you may want to select one that is a “fiduciary” – someone who is legally bound to act in your best interests. The first and second types usually are fiduciaries; the third type is usually not.
Where to find advisors
Ask your friends and family who they use; a personal recommendation is a valuable endorsement. Also, the CFP Board website can help as can this webpage at US News and World Report.
The AARP offers a service called “Interview an Advisor” that will walk you through the questions to ask an advisor before hiring one. The tool functions like an app and is accessible on smartphones, tablets, and computers.
A final thought
Don’t underestimate the value of chemistry. Just as with a doctor, the relationship you develop with your advisor is directly related to the value of his or her advice. After all, you will be sharing some of your most private information with this person and so trustworthiness, good communication skills, and a friendly personality all are very important.
I'm Linda Fleit. My husband and I were lucky enough to retire when we were 61, about nine years ago. We love being retired and want to share all that we've learned over the years about this wonderful stage of life.