Possibly the most ignored part of everyday money life is retirement. For some, retirement is decades away, so why think about it now? Others may feel that they’re so far behind in saving that the situation is hopeless. Neither is true. It’s almost never too late to start saving. Equally true: It’s never too early.
Either way, a professional retirement advisor can often help you set the right course and identify unexpected areas for improvement.
- Saving for retirement is easier the sooner you get started, and a professional advisor can help you formulate a plan.
- Even if you’re close to—or already in—retirement, an advisor may be able to suggest ways to better manage your income and investments as well as avoid unnecessary taxes.
- Some financial advisors charge fees, others earn commissions from the products they recommend, and some do both. Free help may also be available through your employer’s retirement plan.
What Kind of Advisor Should You Hire?
There are all kinds of advisors—and people purporting to be advisors—out there. If you’re looking for help building a retirement nest egg, you most likely want a certified financial planner (CFP) with expertise in retirement planning.
Other financial advisors who may specialize in retirement planning can be identified by various credentials following their names. Those designations include Chartered Retirement Plans Specialist (CRPS), Retirement Income Certified Professional (RICP), or Chartered Retirement Planning Counselor (CRPC), to name a few.
To find a financial advisor, get recommendations from people you trust, ask for references, and interview possible candidates. You may prefer to hire a fee-based advisor, such as a fee-only financial planner, instead of one who receives commissions in return for selling or recommending certain financial products.
Managing your retirement money when you actually retire can be a complicated task, as it involves many aspects, such as Social Security distributions and retirement account distributions, all of which impact income and your tax bracket.
If you have a big (and we mean big) bank account balance, you could go the private banking route. If you’re more of a middle-class family and would rather stay with a big establishment, you could talk to your bank. Beware, though: Bank advisors may only recommend their banks’ mutual funds and other products, and the fees could be high.
There are also advisors affiliated with major investment firms, such as Fidelity and Vanguard. If the human touch isn’t important to you, another option could be a robo-advisor.
Finally, don’t forget to take advantage of any free advising services that comes with an employer-sponsored retirement plan, such as a 401(k), if you participate in one. The plan may not offer full financial planning, but it should at least explain your fund choices and the potential risks involved, as well as help you figure out the fees that you’ll have to pay.
What Do Retirement Advisors Charge?
The biggest headwind that can reduce your retirement savings, aside from not saving enough in the first place, are investment fees. When you interview potential retirement advisors, ask them how they are paid.
If they’re paid by fees from you, ask them how much their fees are and whether the investment products in which they may put you will have fees. Fee-only advisors will likely charge you an hourly rate, a flat annual fee, or a fee based on how much of your money they are managing, often somewhere around 1% per year.
Note, too, that some advisors have account minimums. If you’re just getting started, you may not have a high enough balance to qualify for ongoing advising. On the other hand, many commission-based advisors will take on clients with low balances—just be sure they don’t try to put you into inappropriate or unduly expensive funds. To learn more about comparing fund fees, it’s worth taking some time to read up on expense ratios.
Bear in mind that even seemingly small differences in the fees that funds charge can have a large impact over time. For example, suppose you invest $100,000 in a fund that returns an average of 4% a year. By the end of 20 years, you would have about $208,000 if your fund charged you 0.25% in annual fees, but just $198,000 if it charged 0.5%—a $10,000 difference.
What to Expect From a Retirement Advisor
The first thing you should expect when you sit down with a retirement advisor is a detailed look at your complete financial picture, based on the information you provide. What are your assets? Do you have investments, real estate, pending inheritances, or other resources of value? What are your debts? Do you have a mortgage, car payments, credit cards, student loans, small business liabilities, or other loans? How do you balance servicing your debt while still saving for retirement?
Speaking of retirement, what are your plans for it? Do you expect to work until you can’t anymore, or do you want to retire sooner? Do you plan to travel or indulge in some expensive hobbies? How much will you collect from Social Security each month, and when is the best time to start collecting benefits? How about insurance? Are you adequately covered?
Most companies that offer a 401(k) match an employee's contributions up to a certain percentage, which is a great way to boost your savings.
Once a retirement advisor has all of your information, they will usually draft a report, providing you with a detailed financial plan for your retirement. The report will likely indicate how much money you’ll be able to withdraw from your accounts each month during retirement, based on various scenarios, and how much you will need to save on a monthly basis from now until then to reach your goals.
Your retirement advisor should also take you through the various tax considerations. For example, if you have a traditional IRA, should you consider converting it to a Roth? How can you minimize the taxes you will pay on your other income and assets? How about your estate? If you end up with many assets, how will you minimize your estate taxes?
If the advisor is also a portfolio manager, they may set up a portfolio that fits your goals. If your advisor isn’t able to do that, they may recommend someone who can. Consider the recommendations, but be sure to interview anyone who may join your retirement planning team. Don’t hesitate to ask your advisor if they are getting a referral fee.
How Much Do Retirement Advisors Charge?
Financial planners and other types of advisors are paid in a variety of ways. Some charge their clients fees, others receive commissions when they recommend or sell investments, and some do both. Planners who are paid through fees may charge by the hour, by the year, or based on a percentage of your financial assets. Also, some financial planners charge a flat fee each year, regardless of the investments or asset allocation. Fees can vary according to the advisor’s expertise and the part of the country where you live.
How Can I Find a Retirement Advisor?
One good way to find a reputable retirement advisor is to ask friends and neighbors you trust, as well as other professionals you may know, such as a lawyer or accountant. Ideally, you should get more than one name and interview any potential candidates before you make a choice.
How Do I Know If I’m Getting Good Advice From My Retirement Advisor?
While you may want to rely on a financial advisor’s expertise in some areas, it’s worth investing some time in educating yourself. That way, you’ll know the right questions to ask and be able to make informed decisions. For example, it’s helpful to understand at least the basics of how the different types of retirement plans work, how to maximize your Social Security benefits, and how to minimize your taxes in retirement.
The Bottom Line
Ideally, your retirement shouldn’t be a do-it-yourself endeavor unless you are an expert in retirement planning. Even the most skilled advisors sometimes consult somebody else because staying objective with your own money is difficult.
You may find it helpful to get some professional advice as early as possible to put your retirement planning on the right track. If you can’t afford to hire a paid advisor at this point, you may be eligible for some free guidance through a 401(k) or similar retirement plan if you participate in one at work.