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Setting yourself up for a secure retirement – and being comfortable after you’re retired – is about more than investing.  It’s about establishing a retirement income plan, minimizing taxes, planning ahead for healthcare and refining your estate plan – important steps that will help you reach your financial goals and experience the retirement you envision.

The financial advisor who will do the best job of seeing you through retirement should be able to draw on his or her knowledge and range of expertise to help you address these needs, be armed with specialized knowledge of the problems retirees are likely to face, and have a strong network of experts you can call on for special needs like eldercare law. Of course, it is essential that the two of you click personally. If you’re married, your spouse should feel the same way.

Whether current or new, here are key skills and characteristics to look for when picking a financial advisor to help you achieve your retirement goals: 

1. Overall Experience and Organization

The best advisor for you may not have every single qualification listed below, but these elements will help you identify that person.

Credentials

There is a diverse group of credentials that financial advisors may have. Here are some that can be particularly helpful for retirement.

  • Certified Financial Planner (CFP). This program is administered by the Certified Financial Planner Board of Standards Inc. and requires coursework on a wide range of topics, including stocks, bonds, taxes, insurance, and retirement and estate planning. In addition to passing the CFP certification exam, candidates must also complete qualifying work experience and agree to adhere to the CFP Board's code of ethics and professional responsibility and financial planning standards.
  • Chartered Financial Analyst (CFA). This designation is offered by the CFA Institute, formerly the Association for Investment Management and Research. Among other requirements, candidates must pass three difficult exams and gain at least three years of qualifying work experience. Those who pass have demonstrated extensive knowledge of accounting, the current state of the economy, portfolio management, and security analysis.       
  • Certified Investment Management Analyst (CIMA). Only individuals who are investment consultants with at least three years of professional experience are eligible to try to obtain this certification, which signifies a high level of consulting expertise. The Investment Management Consultants Association offers the CIMA courses, which focus on asset allocation, ethics, due diligence, risk measurement, investment policy and performance measurement. CIMA holders must complete at least 40 hours of continuing education every two years.

Don’t view any of these designations as the most important consideration. They don’t necessarily mean that the advisor is the right fit for you. Just be sure to ask the financial advisor about his or her experience in retirement planning.  

In addition, consider whether the advisor is a fiduciary. Being a fiduciary means that advisors are required to put your interests first, above their own. For example, a fiduciary may choose a mutual fund with lower fees, even if the commission is lower than a comparable fund with higher fees.  

And be careful of official-sounding, but not credible, designations that sound like an advisor has important expertise. Click on this list from the Financial Industry Regulatory Authority (FINRA) to see which credentials are reliable.

Record Check

Go to brokercheck.finra.org and enter the advisor’s name. If any red flags come up, ask the hard questions.  Phil Argue, founder of Prepared Capital in Los Angeles, California, says, “[You] want to understand what happened with each complaint filed against the advisor. And if they changed companies, you want to know why. If they squirm, you might want to look elsewhere.”  

Fee Transparency

Your advisor should be able to clearly describe the fees you’ll be charged. Fee-based advisors should be able to estimate costs based on the time they will spend or the size of your portfolio. Commission-based advisors, on the other hand, should tell you how they will be paid based on the funds they’re investing your money in. Also, find out if you’ll be charged for any email or telephone advice the financial advisor provides.

A Custodian

If your advisor is actually managing your money, not just giving you advice, be sure that he or she sets up a third-party custodian to help manage your funds. The custodian will send you financial statements that let you double-check what you receive from your advisor. Having a reputable third-party custodian hold your securities and other funds adds another layer of security that will help ensure that reporting about your investments is accurate and transparent.

2. Retirement-Planning Expertise

The main job of a retirement financial advisor is to help determine the best time to take key steps – such as making retirement saving account withdrawals, rebalancing investments or beginning to collect Social Security benefits – that will help you experience the retirement you envision. He or she should know about:

Timing Retirement 

You probably have dreams of when you’ll retire, but how will you meet that goal? How much will you need to have saved to retire comfortably – and how much money should be put into your retirement account each month to make that happen? If you’re a couple and both have jobs, who should retire first? A skilled advisor looking at your finances holistically can help you figure this out.

Retirement Savings and Their Tax Implications

Retirement savings plans are tax-advantaged and come with a host of IRS rules with consequences if violated.

When you contribute to a traditional IRA, you can deduct those contributions on your tax return. But when you withdraw the funds at retirement, you pay taxes on the withdrawals. If you withdraw money before age 59½, you might owe taxes plus a 10% penalty. In addition, after age 70½ you face required minimum distributions (RMDs).  With a Roth IRA, you don’t receive a tax break, but you don’t have to pay taxes later when you withdraw the funds. And there are no RMDs.

Taxes are also a consideration with other types of investments.  For example, annuities – which can provide guaranteed income during retirement – have tax implications. Earnings from both fixed and variable annuities are tax deferred, so you don’t owe any taxes on them until you take annuity payments at the annuity starting date or if you take distributions before that. Once the payment phase starts, some portions of payments may be tax free, while others are taxed at your ordinary income tax rate.

All of these investment vehicles require specialized knowledge to keep you from paying more taxes than you should.

The Fine Points of Social Security

Social Security continues to be a major source of retirement income for most Americans. But knowing the rules of how and when to withdraw, how other income affects your benefits, and how it fits into your estate plan is a job for an expert. Your financial advisor should be knowledgeable about how Social Security factors into financial planning.

For example, if you’re married, one consideration is whether you or your spouse would gain more from taking a spousal benefit than from getting the Social Security benefit you had earned under your own name. In addition, the main breadwinner’s retirement affects when spousal benefits can begin.

Investment Rebalancing

If you’re facing a 20 or 30+ year retirement, you’ll need to keep some assets in stocks and shift a portion of your assets into fixed income. Figuring out the balance of stocks and fixed income is an essential part of your financial advisor’s job. As you get older, this balance should continue to change.

3. Retirement Money-Management Skills 

While living in retirement and no longer earning a salary, it’s important to define the ways in which you will withdraw savings and generate income to achieve retirement goals. Your financial advisor should help you plot this out. That requires developing specific strategies for:

Retirement-Account Drawdowns

Determining how much to withdraw from your retirement accounts each month is important. If you withdraw too much, you might run out of money before you pass away. If you withdraw too little, you could run into problems with required minimum distributions or unnecessarily live on less than you need to. Come up with a good drawdown plan to properly manage your money so you can spend it where you want.

Retirement Income Planning

Your advisor needs to develop a retirement income plan that plots your total guaranteed income picture after retirement. After calculating Social Security benefits, your advisor should help determine what else will be coming in from drawdowns, annuities, pensions (if any) and your investments. The plan should determine how much you’ll be able to live on each month and include ways to plan for unexpected costs, such as medical expenses.

Sourcing Additional Funds

Whether for expected or unexpected costs, if the plan makes it clear that you will not have enough to live on down the road your advisor can develop strategies to help meet your financial challenges. One way to raise additional funds in retirement is to sell high-dollar assets – for example, downsizing a home. A reverse mortgage may turn out to be useful, but it needs to be organized properly for a couple to ensure that the widow(er) could continue to live in the home if desired. When a person is living on his or her own investments, managing risk becomes vitally important. Getting a retirement job, of course, is another way to raise funds.

4. Trusts & Estates Experience

In addition to plotting out how you will live during your retirement years, your financial advisor should be able to assemble a team that will handle the key documents you will need to keep your family safe. An advisor who knows you well may also have valuable insights about whom to choose for important responsibilities, such as an executor of your will or medical proxy. Having these key issues settled will give you more peace of mind to enjoy your retirement and focus on your goals.

Will and Estate Planning

Your financial advisor may not be able to give you official legal advice, but he or she should be able to advise you on how to set up your holdings to give to others. Further, an advisor should know enough about estate planning to make your financial portfolio as tax efficient as possible so more of your assets go to loved ones and organizations you believe in.

Trusts You Might Need

Often, trusts provide a way for assets to avoid the high cost of estate taxes. Your financial advisor can’t set up a trust for you, but he or she can talk to you about the advantages of such an arrangement. An attorney can then set up everything. Trusts can also enable a healthy spouse to manage the serious illness of his or her partner, helping to ensure the best possible financial outcome in a difficult situation.

Key Paperwork

Powers of attorney, medical proxies and other essential documents should be in place. An attorney should provide these, but a financial advisor should make sure that this happens and that key members of your family have copies. With these important decisions made, you will be able to focus on your goals and know that you’ve minimized the need for last-minute decisions.

Eldercare Services

Should these be needed, financial managers should have access to professionals who can handle services elderly clients may need. Some examples:  a case manager for someone with difficulty managing bills; a home healthcare aide; a continuing care community. Knowing that you have options and access to expert help can help enable you to live independently for as long as possible during retirement.

5. The Importance of Chemistry

Others might call it rapport, but once you’re confident of an advisor’s ability to service your account, ask yourself if you like this person. You’ll be working together on issues that can be very sensitive, such as money, family members and health.

If you don’t like or feel comfortable with a potential advisor, he or she is not the right fit. You’re looking to build a relationship for decades. Your advisor should be someone you trust, who is easy to talk to – even about difficult issues like health and who should have your power of attorney.

QUESTIONS TO ASK

Based on all of these considerations, here a few questions you might ask a potential advisor:

  • How much money do you manage and how many clients do you service?
  • What percentage of your clients are retirees or pre-retirees?
  • Which designations do you hold?
  • Do you specialize in a certain type of client?
  • Do you have a menu of services you can give me?
  • How often do you communicate with clients?
  • Are you a fiduciary?
  • Which types of investments do you include in a typical portfolio and how do you decide what’s best for a specific client?
  • What is the name of the company that acts as custodian for the funds you manage?
  • Do you require direct access to my funds or only investing rights? You should be cautious about giving an advisor total access to your money.
  • Show me a fee schedule and explain how the fees work. Also, how can I limit additional fees, such as for mutual funds?
  • If I were to sign with you, to whom do I write the check? (You should always write a check to the holding company that is the custodian of your funds– not to the advisor.)
  • Tell me about your family (and other questions to judge chemistry).

Your current advisor may have enough of the skills you need to be a great fit for you during retirement. If that’s the case, use this information to help shape your planning.

But if you conclude that you need someone different, how do you find that person? How to Find a Financial Advisor/Planner has some good tips, as does Financial Planners: Specialize in Seniors. If one of the types of certifications listed above looks like what you want, click on the website of the sponsoring organization to find members in your area.

 

 

 

 

 

 

 

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