Many people nearing retirement age wonder whether they would benefit from securing the services of a professional financial planner. The answer is, most likely, yes. A good planner, who is your advocate (a fiduciary advisor) in all things, can make a big difference. But the specific benefit for you will, of course, depend on the details of your situation.
As you look at the potential value of working with a financial planner, you could see benefits in several different areas:
- Advice about how to prioritize your financial goals can fundamentally affect your retirement. Some questions a financial advisor can help with include:
- Can you afford to travel on a big vacation trip every year in retirement, or should it be every other year? The difference could be major.
- Can you benefit from moving nearer to your grandchildren and moving to a low-tax state?
- Advice about managing risk to your financial plan is another important area. When this is done well, it’s also difficult to measure because it’s about preventing a train wreck that would destroy your plan. If it works well, there is nothing to see. Financial advisors can help you determine:
- Do you have enough life insurance to protect the family from both the risk of disrupted income and the expense of being a one-earner family?
- Do you have health insurance and long-term care insurance to be sure that retirement does not get consumed by a negative health event for one partner?
- Advice about what to do when investment markets are going rotten can be priceless. This includes:
- Having the wisdom to understand when it may be valuable to adjust your lifestyle.
- Knowing when to change investment strategy and when to “trust the process.”
- Having an investment plan that is more resilient during challenging times, giving you more flexibility.
- Advice on what investments to own can make a difference on your performance.
- Advice on what investment accounts to use can make a big difference on the tax impact on your investments.
- Advice about how much to withdraw from accounts and when to make those withdrawals can significantly affect financial performance.
- Advice on how to react to unexpected financial news can be priceless. Having a trusted resource with whom you can discuss upsetting or confusing news can be a significant comfort.
Morningstar Inc., a global financial data firm, did a research study to measure the value of professional financial advice and the estimated and average benefit of about 2.45 percent per year.
| Morningstar Advisor Gamma | |||
| Investor question | Benefit of financial advice (%) | ||
| Low | Average | High | |
| 1. Why invest at all? | 0.05% | 0.30% | 1.00% |
| 2. Which type of account is best for my situation? | 0.10% | 0.25% | 0.50% |
| 3. What is the appropriate risk level? | 0.10% | 0.40% | 1.00% |
| 4. Which asset classes should be included? | 0.00% | 0.20% | 0.60% |
| 5. How does the risk of the goal affect how I invest? | 0.05% | 0.20% | 0.50% |
| 6. What investments are right to help me reach my goal? | 0.00% | 0.45% | 1.50% |
| 7. Should my investments be revisited or rebalanced? | 0.10% | 0.65% | 1.60% |
| Total additional annual returns added by advisor | ∼0.40% | ∼2.45% | ∼6.70% |
Source:“Alpha, Beta, and…More Gamma,”Morningstar
How do I find a financial advisor?
Part of building that plan and executing it successfully is choosing a great partner to help you.
If you think you might retire in the next 10 years, it’s a great time to visit with a CERTIFIED FINANCIAL PLANNER™ professional. Start your search here. The link will let you see CFP® professionals near you.
As you visit with financial planners, I suggest a couple things to check:
- Is the advisor always the client’s advocate – a fiduciary advisor?
- Is the advisor only paid by clients, not any financial product manufacturer or distribution network? That would be a fee-only advisor.
These two points help assure that you are working with a professional who is committed to your best interest at all times. It seems sort of obvious to me that a professional would work in this way, but it’s not automatic.
A fiduciary, fee-only, CFP® professional can help you create a financial plan that is driven by your goals and priorities and addresses all aspects of your financial life. With a big-picture approach, you will be better prepared to understand your options at every step along the way.
Yes, I am a CFP® professional. I’m always a fiduciary and I only work on a fee basis. And yes, I’m still taking on a few great families to be part of my financial planning practice.
If this article has you thinking about the value a planner could add to your retirement, contact my office at rdunn@dunncreekadvisors.com. I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.