When Should You Hire a Financial Advisor?

Photo illustration to accompany article on financial advisors and Erin Lowry Image courtesy of Erin Lowry
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There is no single golden ticket to retirement.

In today’s world, planning for it is complicated. You’re tasked with combining 401(k)s with (or without) employer match, any lingering pensions, your IRA, and Social Security — all while thinking about rising health care costs and your ultimate personal goals.

It hasn’t always been this way. Once upon a time, defined benefit pension plans were the norm for many workers. In 1970, nearly 45 percent of private sector workers were covered by a pension plan, but by 2008 that number had fallen to 20 percent, according to the Social Security Administration. 

So what does this mean for everyone else? You need to lay the financial groundwork for your own retirement early. And when things get tricky, you might want to pull in some expert advice to help you cross the finish line. 

But first, you need to answer one very important question.

What Does Your Retirement Look Like? 

You might have been dreaming about this for years. Ideally, you’ve been investing and strategizing, too. But if you haven’t, it’s never too late to start.

Start by asking yourself: How much money do I need annually when I retire? Your needs include the basic necessities: housing, food, transportation, and medical care.

The second most important question is: How much money do I want annually? This is where you consider your lifestyle expectations and how you want to spend your time in retirement. Will you be traveling? Downsizing? Living large?

You can estimate these numbers by looking at your current budget (or creating one if you don’t have one) and anticipating your future needs. Then you can look at how much you already have saved and invested, and how much you expect to draw from Social Security (if you’re really risk averse, then you could even remove the expectation of Social Security, or a new government program, as a potential safety net).

When you start to understand how much it will cost to live as a retiree, you can consider your options: perhaps you want to move to a different climate, an area with a lower cost of living, or even a state with no income tax.

Once you’ve created a basic financial picture for yourself, it’s time to decide whether to bring in a professional.

A Pro Can ‘Gut Check’ Your Plans

It’s easy to look at retiring with rose-colored glasses. You’ll simply leave your job and start living your best life, right? 

But there’s more strategy involved than you might think. An expert can show you how to calculate your Social Security benefits, map out your tax filing strategy, or properly allocate your investment portfolio to withstand a turbulent stock market..

It’s prudent for those nearing retirement to do at least a one-time session with a certified financial planner in order to gut check your plans. If you’re earlier in your career and several decades away from retirement, you still may want a professional to look over your plans and make sure you’re right on track. It never hurts to have an objective third-party person evaluate your financial decisions.

How to Find a Legit Financial Advisor 

Financial advisor is an opaque term. There are few regulations about who can use the title and it is often applied to people like insurance brokers who are trying to sell you a policy. That’s why it’s important to work with a fiduciary, which simply means someone who is bound to do what is in your best interest. 

You should be looking for a Certified Financial Planner. CFPs are required to be fiduciaries, which means the vetting process is easier. A fee-only CFP makes it more straightforward because they don’t receive a commission for any products put in your portfolio.

There are a few places to find CFPs who can handle your retirement plan. You can find a fee-only fiduciary through XY Planning Network, which caters to a younger audience, or Garrett Planning Network. Another resource is the CFP Board’s Let’s Make a Plan search tool. 

The cost of hiring a CFP varies based on the planner and the exact scope of work, but expect to pay at least a few hundred dollars for a comprehensive plan. Not all advisors do one-off consultations, so be sure to search for someone who does and also specializes in retirement planning. 

How to Prep for That Big Meeting

You should come prepared with both questions and the following information in order to get the most out of your session with a financial planner. 

Alternatively, if you’re dedicated to flying solo, you should keep these variables in mind.  

  • Create a budget for monthly and annual expenses in retirement.   
  • Check the asset allocation on your 401(k), IRA or other retirement investments as well as personal, taxable investments to ensure it’s enough to weather any turbulent markets as well as last you all throughout retirement.
  • Create a back-up plan to generate income should a market disruption happen shortly after you retire. It might be prudent to boost your savings now so you can delay drawing down on those investments in the middle of a recovery.
  • Know how you’re getting health care. Do you qualify for Medicare or will you have health benefits from your workplace’s retirement plan or your spouse’s?
  • Evaluate your Social Security income and decide how long you should wait to claim the benefit. 
  • Pay off any consumer debt and try to save up for any home renovations or other big purchases you’ve been planning. 
  • Check in on your insurance policies, including any life insurance or long-term care insurance needs. 

Yes, there are a lot of factors involved in retiring, and while it’s easier to delay decisions — or avoid making them altogether — hiring someone else to help you through the process can not only give you peace of mind, but some crucial accountability for making your plan. 

It’s not always smooth sailing into retirement, but you don’t have to do it alone.