Acing all the key components of retirement planning is akin to getting a perfect score on the SAT college entrance exam. It’s not impossible. But for most people, it’s a long shot. And just as a prospective college student may seek help preparing for the SAT, it often makes financial sense for everyday Joe and Jane 401(k) plan savers to seek a financial advisor to help them map out a retirement strategy.
Even 401(k) do-it-yourselfers who did just fine during the nest-egg accumulation stage realize that there’s a lot more complexity in the so-called “distribution phase” when work paychecks stop and paying the monthly bills rely on the retiree’s own assets and retirement plan. It’s not easy for a DIYer to figure out how much income they’ll need for retirement. Key questions may seem straightforward but may quickly get complicated. For example: what funds should I invest in; how should I divvy up assets between stocks and bonds; when should I take Social Security; how should I manage required minimum distributions (RMDs); what financial accounts should I withdraw money from to save on taxes; and should I convert a traditional IRA to a Roth IRA?
That’s a mouthful. But the laundry list of retirement puzzle pieces is designed to illustrate that coming up with a perfect retirement plan on your own is challenging. For most people, it’s simply too heavy of a lift. When the job of overseeing your retirement-related finances becomes too complex or overwhelming, getting help from a financial adviser could relieve some of the burden. Indeed, working with a financial adviser acting as a fiduciary (e.g., someone who puts your best interests ahead of their own) can go a long way toward helping you get your finances on track, whether you’re nearing retirement or already enjoying your golden years. With the help of a financial adviser, you can make more prudent financial decisions and navigate the final chapter of life’s financial challenges with confidence and peace of mind.
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So, if you’re looking for a financial pro to help you plan for retirement, where do you start?
When it's time to find a financial adviser for retirement
Before beginning your search for a financial advisor, determine what type of help you’re looking for. Are you looking for help to maximize Social Security benefits or tax-efficient withdrawal strategies or building a portfolio or a full-blown retirement financial plan? Remember, your situation is unique and will differ from your neighbors’ or friends’ retirement challenges. So, you’ll want to solve the specific financial challenges you’re facing.
When it comes to retirement planning, what you don’t know can hurt you financially. If you’re approaching retirement, for example, you might not know how to create a portfolio that will generate an income stream after you stop working. You might not be sure if it makes sense to take Social Security early at age 62 or wait for a larger benefit check at age 70. You may not fully understand the tax implications of converting retirement assets into a Roth IRA. You may dream of leaving money to heirs but have no clue as to the best way to set that up. You may wonder if you should pay off your mortgage before retiring.
If you are uncertain about the proper moves or lack the necessary financial knowledge, you might benefit from the help of a professional financial adviser.
The financial adviser, who offers services ranging from retirement planning to portfolio advice, risk management, and tax planning, will assess your financial position holistically and develop a financial plan to help you set and achieve your goals and desired lifestyle in retirement.
How to find a financial adviser
One way to jumpstart your search for a financial adviser who specializes in retirement planning is to ask friends, family members, and professional contacts for referrals. Getting recommendations from people you trust, especially your accountant, attorney and other so-called “centers of influence,” can get the ball moving.
Working with a dedicated adviser focused on retirement who has the capability to use algorithms that can run thousands of retirement outcomes in good and bad market environments can help you answer key questions, such as: Do I have enough money saved to retire? What are the odds that I will run out of money? How much money can I withdraw from my retirement accounts each year? What’s the optimal age for you and your spouse to take Social Security?
Another good option, especially if you already have a relationship with an investment company or brokerage, such as Fidelity Investments, Charles Schwab, Vanguard, or T. Rowe Price, to name a few, is to investigate the relatively low-cost advisory options, retirement planning solutions, and investment options these well-known firms offer. These services typically range from digital advice to a more traditional advisory relationship that includes your own dedicated advisor. In fact, many financial firms, including Schwab and Fidelity, have an advisor search tool on their websites,
Tapping the resources of industry groups representing financial advisors and financial planners is another outreach tool to consider. For example, the National Association of Personal Financial Advisors (NAPFA) helps you initiate contact with a financial advisor in just a few clicks. Similarly, the Certified Financial Planner Board offers a search tool to find advisors who have earned the certified financial planner (CFP) designation. Some sites allow you to search by zip code, assets under management, area of specialty such as retirement planning or estate planning, and by the type of client the adviser focuses on, such as women, retirees, or LGBTQ.
Financial planning networks are another excellent resource for locating financial advisers, according to NerdWallet. Examples include XY Planning Network, whose advisers hold the CFP designation and offer virtual services; and CHIP, which focuses on matching clients with African American, Hispanic, and Latinx financial advisors.
You’ll run into acronyms for financial certifications and credentials when searching for financial professionals. A CFP, for example, stands for a certified financial planner. This financial professional has passed a comprehensive exam on financial planning topics and has met a minimum threshold for hours worked in financial planning capacity. CFPs are held to a standard that requires them to function as a fiduciary. You might also come across a ChFC, which stands for chartered financial consultant, or an RIA, a registered investment advisor.
No matter their credentials, ensure you check their professional background, Fidelity Investments advises. “That means treating them like you would any other person you were considering hiring for a job: by looking at their resume or LinkedIn as well as asking for references,” Fidelity noted in a blog post. You can also run a free background check using the Securities and Exchange Commission’s Investment Advisor Public Disclosure database or FINRA’s BrokerCheck system.
What questions to ask a financial adviser before hiring them
Michael Cherny, head of Citizens Wealth Management Advisors, recommends getting to know a potential financial advisor better by asking key questions during your first introductory meeting. “Your first meeting can help determine if the financial advisor is a good match for you professionally and personally,” Cherny wrote in a blog post.
Here are the key questions to ask:
- What are your experiences and qualifications? Find out how long they’ve been in the industry and if they have any specialty designations like a CFP or if they specialize in retirement planning.
- Have you worked with people like me before? You can often find a better match, says Cherny, if the advisor commonly works with clients your age and income range and who share similar retirement goals.
- Do you prepare financial plans, manage investments or both? Make sure the advisor specializes in the area you need help.
- What’s your approach to investing? You want to make sure that the advisor invests in a fashion you are comfortable with and that matches your risk tolerance and goals.
- How will we communicate? Get a sense of how frequently you’ll touch base with your advisor. Will it be a monthly, quarterly, or annual touch base? And find out if you will meet via phone, in person or digitally.
- How do you get paid? As noted below, financial advisors get paid in a few different ways. They could charge you based on the amount of money in your account, hourly, or a flat fee. So, make sure you find out what payment system will be used and that you’re comfortable with that arrangement. “You may also find advisors who earn commissions by selling investments,” says Cherny. Commission arrangements should be evaluated carefully, as advisors can earn commissions by putting you into specific mutual funds or other types of investments when there might be lower-fee options available.
How much do financial advisers charge?
The cost of a financial advisor depends on how the financial professional charges for their services. Here are the common pricing structures:
Assets Under Management. Often, financial advisors charge a percentage based on assets under management — or how much of your money they manage. The industry median charge is 1% (meaning half charge less and half charge more), according to Fidelity. So, if a financial advisor is managing $500,000 of your money and charges 1% of assets under management, their services would cost you $5,000 per year. But it’s possible to get advice for less due to the competitive nature of the business. So, shop around and compare the costs for advice based on assets under management.
Hourly. Some charge by the hour, not how much you have sitting in your account. Rates range from $200 to $400, according to financial website NerdWallet. Going the hourly rate route is a good option if you just want to set up, say, a basic retirement savings plan, or you want an advisor to analyze the holdings and asset allocation in your 401(k) to see how much income that will generate, as well as let you know if you’re on track for retirement or whether any tweaks to your portfolio are necessary to reach your goals.
Flat fee. Some financial advisors charge a set fee based on the work that’s being done. This pay structure is akin to an a la carte menu at a restaurant, where each menu item you select comes with its own charge. A financial advisor, for example, may quote you a set one-time fee to create a comprehensive financial plan for you.
Should I use a human financial adviser or a robo-adviser?
Not every investor has the time or money to hire a real-life financial adviser to help them with retirement planning. Some people have simple goals, such as saving for retirement or deciding on a 4% per year withdrawal strategy, and, therefore, don’t require a full retirement financial plan. For these people, a good option is a robo-adviser, which provides digital portfolio management and asset allocation decisions at a fraction of the cost of a traditional advisor.
Robo-adviser fees typically start at 0.25% of assets, according to NerdWallet. These funds will consider your age, time horizon, and risk tolerance when deciding on the right mix of stocks, bonds and other assets in your portfolio. Robo-advisers, such as Betterment, Wealthfront, and Acorns, typically build portfolios using low-cost index funds or exchange-traded funds (ETFs). They may also use a one-size-fits-all fund such as a target-date fund, which determines the asset allocation based on how many years you have until retirement and adjusts the mix of stocks and bonds to a more conservative stance as you near retirement.
Keep in mind that some digital robo advisors, including Facet Wealth and Empower and many big brokerages and mutual fund companies, also offer virtual access to a human financial advisor if the need for a financial plan arises.
Red flags when hiring a financial adviser
Zoe, a wealth platform that vets independent financial advisers and connects and matches them with people looking for advisers, ticks off red flags to watch out for when shopping for an adviser. For one, you’ll want to think twice about joining forces with an adviser who focuses on short-term performance rather than a long-term plan. You should also tread carefully with advisers who tout their ability to beat the market. Advisers who push products, such as mutual funds or annuities that they earn a commission is another red flag. It’s also important to vet financial advisors to ensure they have no record of unethical or illegal behavior.
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