With respect to retirement planning, many consider consulting retirement planners / retirement advisors essential. And for most, it is essential as retirement is the first time in life when you need to make such large financial decisions. People of modest means may retire and have a 401k rollover of $500,000 or more and have never needed to invest such large amounts previously. Additionally, the fact that income you control stops, your income from work, places you in a new situation of having to rely on income sources you do not control (pension, social security, investments).
Some retirees who do not get professional advice, later regret some of the financial choices made. So what retirement services can you expect from retirement planners?
Services of Retirement Planners
Comprehensive retirement planners will provide retirement services that analyze the entirety of your financial situation:
- Investment allocation
- Sources of retirement income such as social security and pensions
- Reduction of Income taxes
- Health care protection-both for doctors and hospitalization as well as long term care
- Estate planning
- Projections for your cost of living and inflation
Retirement planners will combine all of this data and analyze it, resulting in a written retirement plan for your retirement years that will make practical sense and provide a good dose of peace of mind. People who have written retirement plans report being more satisfied and have a better retirement.
Retirement Planners’ Services
Retirement planners will also provide the details for the above retirement services such as:
Investment management. Not only will retirement advisors get you started in retirement with an optimized portfolio, but also provide the retirement services to manage your retirement portfolio. This is a critical retirement service because things change-not only the financial environment but also your desires. At minimum, the retirement planner will rebalance the portfolio annually to realign it with a predetermined allocation. If you are still working, the planner should also provide some allocation advice about your 401k and IRAs, even though he cannot manage it directly.
Note that we are in a time of the robo-advisor. Using such a service may save you money over using the services of retirement advisors. How much extra does it cost to have a professional to work with and talk with vs doing it online yourself? You may also take a hybrid approach. Use retirement planners to set up the portfolio initially and let a low-cost robo-advisor take it from there.
Tax return preparation. If the retirement planner does not actually prepare your tax return, he should review it annually to determine if there is any fine tuning that can help minimize your income taxes. This is an important retirement service because a $2,000 savings can mean a nice extra vacation.
Provide Health Care consulting. Many retirement planners are actually financial planners that deal with people of all ages. Do not select such retirement advisors as there are issues specific to retirement such as the interplay of private healthcare with Medicare for which the right retirement planners will have expertise and experience. He should be a specialist in advising retirees. The retirement advisor may have an insurance license and therefore can help you buy the right HMO plan or Medigap policy, either of which is a must-have.
Retirement services for health care also extend into planning for long term care retirement services. Whether you will self-insure or buy long term care insurance is a decision to be made when you are healthy. Running such numbers on long term care options is precisely the type of exercise for which retirement planners provide value.
Last, the arena of estate planning is not about just issues that arise at death. Additionally, estate planning is not just for rich people. Retirement planners must have experience with plans for the following retirement services:
- Conservatorship in the event of mental incapacity
- Health care power of attorneys and living wills in the event of physical incapacity
- Medical wills in the event of terminal illness
- Wills and trusts
- beneficiary selection
It is important to understand the industry in which retirement planners operate to make a good selection. How the planner is paid is important not only for you to know what you pay but also to understand the retirement planner’s motivations. Come right out and ask “How do I pay you? What percent of your compensation comes for the sales of products or investment management? The more reliant the retirement planner is on sales of products for compensation, the less you want to hire the planner.
You want good advice and therefore, retirement advisors that charges hourly or an annual retainer will get you unbiased advice.
Retirement Planners Specialized Tools
Retirement planners have software, such as social security calculators, retirement income need calculators and other specialized software which may include a long term care calculator. Other software will tie all of the information mentioned in the past section into a coordinated report that you can follow. Planners will also use a more sophisticated tool that provides Monte-Carlo simulation–a display of probabilities of retirement success.
Ten Questions to Select Amongst Retirement Advisors
Selecting the right retirement planner is important to you. Here are questions to ask a retirement advisor candidate that will help distinguish one from the other.
1. What experience do you have with retirement financial planning?
Find out the percentage of his clients by age category. You want to make sure that the bulk of his clients are similar to you so that he has experience in actual planning for people like you. Ask if they do consulting about maximizing Social Security. Even if this is a service you do not need (because you already started taking social security), it is an excellent way to tell if the retirement advisor is really focused on retirees.
2. What are your credentials and what do they mean?
There are retirement financial planners with great credentials that are not that competent and vice versa. But credentials do illustrate an individual’s willingness to engage in further learning and take on additional work. Find out what work was required to earn each credential as there are some credentials in the financial services industry that have little value. You can look up what most credentials mean here. As a general rule, if the retirement planner does not have a CFP or ChFC credential, you should pass.
3. What services do you offer?
Likely, you need assistance with retirement income planning, tax reduction, budgeting, possibly estate planning and portfolio management. If his list of services does not match your needs, then move on to another retirement financial planner candidate.
4. What is your approach to retirement financial planning?
When you ask this question, you look for a thoughtful systematic approach. It might sound like this:
- First, we estimate the income you will need in retirement based on your desires.
- Next, we calculate the sufficiency of your current financial resources to achieve that income.
- If the resources are insufficient, then I present you with alternatives to fix the deficiency as best we can.
- Next, we document a spending plan, a retirement plan that takes into account which pots of money get used first, tax minimization and a portfolio design.
- Then we implement what you agree on.
- Last, we meet every 6 months to review progress and account for any changes in your desires or circumstances.
If the retirement financial planner cannot easily state their approach in a concise and chronological manner, find a professional that will.
5. How can I tell that you’re competent?
Don’t be afraid to ask this challenging and direct question to a prospective retirement financial planner. If he cannot give you an answer that inspires confidence, then why trust him with your financial future?
6. How will I pay for your retirement financial planning services?
As part of your financial planning agreement, the financial planner should clearly tell you in writing how she will be paid for the services to be provided.
Retirement advisors can be paid as follows:
- Fees based on an hourly rate, a flat rate, or on a percentage of your assets
- Commissions paid by a third party from the products sold to you to carry out the financial planning recommendations.
- Commissions are usually a percentage of the amount you invest in a product.
- A combination of fees and commissions whereby fees are charged for the amount of work done to develop financial planning recommendations and commissions are received from any products sold.
In addition, some retirement advisors may offset some portion of the fees you pay if they receive commissions for carrying out their recommendations. You would prefer to deal with a professional that works on a fee basis rather than commissions that may be “buried” or hidden in products.
7. I have assets of $xxxxxx. How much do you typically charge someone like myself and what are the components of those charges?
This question gives clarity to the answer from question 6.
8. Will my retirement financial plan look like those for your other clients?
If the planner tells you everything is totally customized, be ready to pay a fortune or the planner is not being honest. If most of the retirement financial planner’s clients are between age 55 and 65, then the plans SHOULD look similar from one another as people in the same group have similar retirement planning issues. It’s the similarity among the retirement advisor’s clients that gives him the experience you desire.
9. Have you ever been publicly disciplined for any unlawful or unethical actions in your professional career?
While you may think this is an important question, there is no reason to ask it as you can get this information on the Internet. Retirement advisors, depending on how they operate, are either responsible to the SEC, FINRA and/or the State Department of Insurance. All 3 list disciplinary records and in 15 minutes, you can check the background of any potential retirement financial planner.
10. What do I get in writing?
If the retirement financial planner offers little in writing, walk. At minimum, you should get a list of fees and services, disclosure of any conflicts of interest, a written plan and an investment policy statement. While these don’t need to be lengthy, reputable and competent retirement advisors will provide documents that serve these purposes.
You may also inquire about how the planner will guide you as the future unfolds. Will he update your plan annually? What types of adjustments may be needed? What is the cost?
We have written a few posts concerning the motivations of retirement financial planners and how they really operate. Rarely, will retirement advisors consult to you on an issue that is not a problem for which they have a product or service to sell as the solution. So when it comes to retirement planning, most will never mention the most critical issue for having a financially comfortable retirement. That issue is to reduce your retirement expenses and we will show you how in the remainder of this post.
Reduce Expenses – Most Important Factor in Your Retirement Planning
First, let’s consider your housing. Even though you may have your house paid off, it still may be more expensive than necessary or a lost financial opportunity. Most people don’t realize that the equity in their house is like having a bank account that pays zero interest. You earn absolutely nothing on the equity but you could
- You could take a reverse mortgage and convert your equity to payments for the rest of your life. Or you could get a lump sum payment. I would recommend the former as it coincides with the needs of most retirees, an enhanced a monthly income.
- Alternatively, you could sell the property and move to a smaller property or move to an area where homes
are less expensive. For example, I live in Northern California and my modest four-bedroom 2 1/2 bath house is worth about $1.3 million. In many areas of the country I could live in the same house for $500,000. Doing so would free up $800,000 I could invest and at 6%, that’s $48,000 annually of additional income.
Even though I started off this section talking about reducing your expenses, in the case of down-sizing, moving or harvesting your home equity, the result is actually an increase in income. The same concept applies if you rent. Can you move to a different area of the country where rents are far less for the same level of comfort?
Secondly, let’s discuss your dining-out budget. I previously spent a lot on dining out – may be $1500 per month. That figure is now 90% less not because I purposely reduced it but because I started eating better. I now use Dr. Hyman’s low-sugar-consumption eating plan and many of you may be aware of his bestseller the “Ten Day Sugar Detox.” I do not feel that I have given up any pleasure by not eating out as I now eat far healthier food, feel good about it and do not in the slightest feel that I sacrifice anything. I highly recommend that you try the Ten Day Sugar Detox. It ended my life-long addiction to carbohydrates and I think you will be surprised.
Last, take a look at your other major expenses. These will differ for each person. As an example, if you live in Phoenix Arizona, your electricity bill for air-conditioning may be your next largest expense. You can eliminate this by installing solar and be rid of this expense forever. Or maybe your next largest expense is health care. If not yet eligible for Medicare, there are several options which I’ve covered in a separate post. If on Medicare, your expenses should be small because you can join an HMO many of which have zero premium.
You generally won’t get this straight-forward advice on expense-cutting from retirement advisors as they don’t want to lose a client when you move away. Also, there is nothing beneficial for them in giving this advice (i.e. no product or service to sell you). Do you have any other major expenses I have not addressed? Just leave a comment in the comment box below and I’ll be happy to respond with ideas on how to save.