Kyle Rolek, Retirement Planning Specialist
When Should I Hire a Financial Advisor?
Updated: Aug 4, 2020
Before covering 6 situations when hiring a financial advisor adds value, we must address how to choose a financial advisor. It’s critical to be very selective. The quality of financial advice varies widely among practitioners.
To choose a financial advisor or financial planner, first, only work with a one who is a fiduciary.
What is a fiduciary financial advisor or fiduciary financial planner?
Many financial advisors get paid hidden commissions. Hidden commissions can and will reduce the quality of advice.
Fiduciaries do not receive any hidden commissions. Focus your search exclusively on hiring a fiduciary financial advisor or fiduciary financial planner. This will narrow the field significantly.
Second, only work with a financial advisor who specializes in what you need. While advice from a generalist financial advisor might not always be bad, there will be nuances that a generalist will overlook.
Don't settle. When it’s time for you to hire a financial advisor, seek out the best financial advisor for your unique needs.
From my experience, the 6 situations below are when clients tend to receive the most value from hiring a financial advisor. These situations relate specifically to retirement planning because retirement planning is our expertise:
Situation #1: You want to feel a sense of financial direction
Hire a financial advisor when you need help creating a focused, written, comprehensive plan. A high-quality, comprehensive financial plan will provide a strong sense of financial direction.
A fiduciary financial advisor will work side-by-side with you to create a written financial plan that addresses items such as:
Analyzing and estimating retirement expenses including the impacts of tax, healthcare costs, and inflation
Social security and pension decision making
Investment planning, including how to consolidate accounts and create a well-organized retirement income plan
Tax strategy, including Roth conversions and Required Minimum Distribution planning
Healthcare planning, including Medicare and long-term care
Estate planning, including wills, powers of attorney, and trust planning in coordination with a good estate planning attorney.
Situation #2: Accounts need to be organized and consolidated
Hiring a fiduciary financial advisor can streamline the process of organizing and consolidating accounts. Staying financially organized is valuable at any point, and especially so for those retiring relatively soon.
Organizing and consolidating old 401k or 403b accounts, old pension plans, and IRA accounts can have the following benefits:
Easier to set up a coordinated retirement investment plan. A fiduciary financial advisor, especially one specialized in retirement planning, will help you determine an appropriate amount to keep in FDIC insured bank accounts, bonds, and stocks. They’ll also advise you on the specifics of what types of bonds and stocks are most appropriate for you, and they’ll help you make relevant updates over time. It’s much easier to create a coordinated investment plan once accounts are organized and consolidated.
Easier to setup retirement income distributions from your accounts. Getting money out of your old 401k or 403b accounts can be a hassle. While some companies are easy to work with, others establish paperwork hoops to jump through that can make getting your money out very difficult. These generally aren’t the types of accounts where you can call up the company if you need money and expect the cash to be where you want it to be within the next couple of days. It can take weeks to get your money, there are important tax considerations, and the process isn’t entirely under your control. Organizing and consolidating accounts makes setting up retirement income distributions lot easier. Once accounts are consolidated, you’ll often have retirement income options within an IRA account that aren’t available with old 401k or 403b plans, such as living on the dividend and interest income only or setting up consistent monthly distributions.
Situation #3: You need to create a retirement income plan
Hire a fiduciary financial advisor when you need to begin planning how to use your accounts to generate retirement income.
During the “accumulation phase” of your working years, financial planning may be as simple as picking a few low-cost US stock index funds, consistently saving into them, and not messing around with things too much (especially not selling when fear is high). This is relatively straightforward, and you may not need to hire a financial advisor at all during the accumulation phase.
However, when it comes time to take income from your accounts, a good financial advisor with experience and specialized knowledge in retirement income planning can be a valuable partner. Hiring a good fiduciary financial advisor and creating a retirement income plan will address questions such as:
How much income do I need my investment accounts to produce each year?
How do I take the income? Should I set up consistent monthly distributions? Should I live on dividends and interest income only instead? Or should I just take out lump sums when I need money?
Which account(s) do I take income from first? What makes the most sense tax-wise?
Which specific investments should I be using to fund my income? Should I be funding my income from my bonds, stocks, or a combination of both?
Situation #4: You need to decide which pension option to select and/or when to start Social Security benefits
Pension plans often provide a dizzying array of options.
Should I take the lump sum or monthly income? If I take the monthly income, should I take the highest amount, or should I take a lower amount so the monthly income continues for my spouse? If I want the monthly income to continue for the spouse, how much do I want my spouse to receive? 100% of my benefit? 75%? 50%?
Each option has tradeoffs. It's important to understand the context of where the pension fits into your individual situation to make an informed decision.
A fiduciary financial advisor and certified financial planner can help put your pension decision into context within a well-organized, comprehensive plan. Don’t blindly follow advice from your co-worker; their financial situation could be totally different. Hiring a good financial advisor can help you decide which option makes sense for you.
Based on the rules as they exist on May 2020, Social Security allows retirement benefits to start any time between age 62 and age 70.
The longer you wait to start your Social Security retirement benefit, the higher the payment amount (the payment amount grows by about 8% per year, or 0.66% per month, while you delay payments). However, the longer you wait to start your retirement benefit, the fewer payments you’ll receive.
Is it better to delay Social Security retirement benefits until age 70 and receive the largest payment amount, but also receive fewer payments over the course of life? Or is it better to start payments sooner and receive smaller payments, but also receive more of payments over the course of life? Also, how do spousal benefits and the survivors benefit work?
Hiring a good fiduciary financial advisor can help you reduce the risk of making mistakes and leaving money on the table.
Situation #5: You need to determine how Medicare, long-term care, and other healthcare costs factor into your retirement planning
Healthcare costs can inflict serious damage on your retirement planning. Hiring a financial advisor can help protect you from needing to face debilitating healthcare costs during retirement.
Medicare Supplement Plans generally have higher monthly premiums than Medicare Advantage plans, but they also have fewer out-of-pocket costs and more flexibility in terms of where you can receive covered healthcare.
A fiduciary financial advisor, especially one who specializes in retirement planning, will get a Medicare planning specialist involved at some point in the retirement planning process to help you with selecting the right plan for your unique retirement healthcare needs.
Long-term care planning is another major risk that can eat into retirement savings. Should you buy the long-term care insurance and hope your premiums don’t go up and/or your coverage doesn’t go down year after year? Should you use trust planning or other techniques involving an estate planning attorney to shield assets? Or should you keep things as-is for now and consider trust planning later on in your retirement?
Hiring a good financial advisor can help you weigh the pros and cons of your options.
Situation #6: You want to make sure your estate plan is set up correctly
Are your will and powers of attorney up to date? Should you take steps to avoid the probate process, or is avoiding probate not important in your case? What about inheritance taxes…is there anything you can do to reduce the taxes your heirs will owe without giving up control of the assets during your lifetime?
Hiring a good fiduciary financial advisor can help you address these issues within the context of a well-organized, comprehensive retirement plan. A fiduciary financial advisor will often work hand-in-hand with a good estate planning attorney to make sure estate planning opportunities aren’t overlooked.
Would you like a 1-on-1 retirement planning consultation? Fill out the “Request Consultation” form, give us a call at 267-427-5667, or email firstname.lastname@example.org