Why Retirement Advice Is Better But Still Lacking
Much has been written by the financial media about the retirement savings crises in the United States. For those of us who want to get on track where should we go to get solid advice on how to plan, save and invest for retirement where should we go to get sound advice? How good is some of the advice available? Frankly, finding good financial advice for retirement can be as daunting for some as taking the actual steps needed to fund a comfortable retirement.
Findings of a Recent Study
A recent piece in Forbes cited findings from a study by financial research firm Hearts and Wallets. Some key study takeaways cited by the author:
- The overall quality of retirement advice has improved as has the ease of using tools such online retirement calculators.
- Many the financial advisory firms included in the study are doing a better job of offering retirement planning services to couples.
- The range of results presented to prospective clients was all over the map.
- Many live financial advisers and online retirement calculators fail to take an investor’s real estate holdings into account when doing retirement planning.
- The quality and depth of the financial calculators varied widely.
- The level and quality of advice offered via 401(k) plan providers has improved.
- The fees for some of the financial advisers were not made readily clear.
- The firms and online tools sampled often did not address real world problems.
From my own experience the scope and quality of online retirement calculators is all over the board. A key piece in gauging what the calculator will or won’t do is to have an understanding of the underlying assumptions. As with anything, the output from the calculator depends on the information that is input and what the program does with that input. (For more, see: 5 Apps and Calculators for Retirement Planning.)
Some calculators use a method called Monte Carlo simulation, which generally takes historical data and uses it to produce random outcomes for future investment returns. Others might take similar data and back-test it.
Neither approach is right or wrong. The results from any retirement calculator should be a guide only. In fact, you might consider using a few of them and lining up the results next to each other. The best you should expect from any retirement calculator is a potential range of outcomes. Saving and investing for retirement is not a "set it and forget it" exercise, even with the best of retirement calculators you will want to revisit and recalculate periodically.
Financial advisers come in many varieties in terms of the scope of services they offer and the manner and amount in which they are compensated. You will want to make sure that any financial adviser that you hire to assist you with your retirement planning actually focuses on this aspect of financial planning. You will want to ask if their focus is truly on retirement planning, if they will be helping you update your plan on a periodic basis, or whether their idea of retirement planning is selling you an annuity or some other financial product.
Does the adviser work with clients in situations similar to yours? How do they charge? Fees, commissions, a combination of both? Competence and compensation are key factors to consider when evaluating a financial adviser. (For more, see: Why the Best Financial Advisor Might Be You.)
Online Financial Advisers
Online financial advisers or robo-advisers are all the rage today. It seems that a new one is popping up almost daily. Like any traditional financial adviser your will need to do your homework to determine what types of retirement planning services, if any, are offered. (For more, see: Is An Online Financial Advisor Right for You?)
The scope and quality of any retirement planning services will vary widely and you need to determine what is offered and if it meets your particular needs.
401(k) Plan Providers
An increasing number of 401(k) platforms provide retirement advice to plan participants. In some cases this via the plan provider’s website in others this might be provided in a one-on-one setting.
The Hearts and Wallets survey found that the quality of much of this 401(k) provider advice is improving. They also found that unfortunately this retirement advice option was underutilized by plan participants. They cited a Charles Schwab Corp. (SCHW) study of 1,000 retirement plan participants that indicated a 23% utilization rate.
The Best Retirement Planning Advice?
The responsibility for finding the right type of adviser to provide the level and scope of retirement planning advice that is right for you starts with you. What I mean is that you need to think through what your needs are and the type of advice and advice provider that you need.
Are you pretty hands-on? Perhaps an online calculator and/or a robo-adviser is right for you. Are you looking for a lot of hand-holding and coaching? Then perhaps a more traditional financial adviser is the right choice. (For more, see: Shopping for a Financial Advisor.)
The Bottom Line
Overall the quality of retirement planning advice available seems to be improving but still varies widely across the board. Access to quality retirement planning advice is a key element in combating the retirement issues facing American workers now and into the future. (For related reading, see: Five Tax Law Changes in 2015 You Need to Know.)