Choosing the right financial advisor for retirement planning is one of the most critical decisions an investor can make. The right advisor can help navigate complex financial markets and boost clients’ confidence in managing their future.
Studies show that individuals working with a financial advisor feel better prepared for unplanned expenses and long-term financial stability. Whether driven by personal recommendations or life events, most people seek advisors for retirement planning.
But how do you choose the correct financial advisor for your unique retirement situation?
In this article, we’ll explore some key questions to ask your advisor about retirement planning.
Key Takeaways
- Selecting the appropriate financial advisor is a crucial decision for retirement planning. The right advisor helps navigate market complexities and boosts confidence in managing finances.
- Understanding your retirement goals and asking the right questions about income, expenses, benefits, taxes, healthcare, and estate planning are essential for creating a sustainable retirement plan.
- Working with a financial advisor helps investors feel better prepared for retirement. It's especially important to work with a fiduciary, fee-only advisor who has your best interests in mind.
Understanding Your Retirement Goals and Readiness
Before digging into retirement saving strategies, it’s important to set objectives. Setting retirement expectations will make your overall savings goal more accurate.
What are Your Retirement Goals and Aspirations?
Retirement is your era. It’s the time to pursue goals, objectives, and opportunities you didn’t have enough time for during your working years. You’ll want to prioritize your retirement goals and consider what you want to save for. Doing so will enable you to better save for retirement, manage expenses, and ensure your money lasts.
How do I Want to Spend my Retirement Years?
When planning for retirement, you should consider more than essentials like healthcare or groceries. You should also include a fund for travel, hobbies, leisure, and other activities. Factoring in these lifestyle preferences will help you better gauge how much you’ll need to enjoy your retirement.
What is my Ideal Retirement Age?
One of the most essential questions in retirement planning is your ideal retirement age. This will determine how to navigate your retirement income and when you should begin taking benefits.
For example, if you want to retire at 60, you won’t be able to take Social Security benefits until you’re 62. Or, if you wait to retire at 70, you’ll have larger Social Security payouts. These seemingly small details can make a significant difference in your retirement income.
Assessing Your Retirement Income and Expenses
After reviewing your goals, you’ll want to consider your current and expected retirement income and expenses. Doing so can help identify gaps in income or determine how to best use your funds.
What Will my Expenses Look Like as a Retiree?
To start planning for your future expenses, you’ll need to understand your cost of living today. The best way to start is to track monthly bills and assess your current spending habits. Then, you can factor in ad hoc expenses, such as vacations, healthcare emergencies, and other miscellaneous costs. This process can help determine if you’ll have enough to retire.
How Much Retirement Income Will I Need to Maintain my Lifestyle?
Next, you’ll want to examine how much income you will need to cover those expenses over decades. However, this is more than just mirroring your total expenses. You’ll want to consider the effect of inflation on your retirement savings, the tax efficiency of your retirement accounts, and similar factors.
What Sources of Retirement Income Can I Expect?
There are multiple forms of retirement income, including Social Security, work pension, 401(k)s, IRA accounts, traditional brokerage accounts, and real estate investments. Determining your retirement income will help you establish a plan to achieve your goals and make your savings last easier.
Having diversified retirement income sources in a down market is also extremely important. In times of market volatility, relying solely on equity investments can be risky, so it’s essential to consider safer, more stable sources of income to protect your retirement savings.
Maximizing Your Retirement Benefits
Retirement benefits like Social Security, Medicare, and pensions are critical components to a successful retirement. Using them strategically can make it easier to make your retirement income last.
What Retirement Benefits am I Eligible For?
Another key consideration is retirement benefits, such as Medicare or Medicaid healthcare options. You’ll want to ask your HR specialist about retirement benefits and pension plans.
How Can I Optimize my Social Security Retirement Benefits?
It’s often better to delay social security payments to ensure a bigger payout, but that’s not true for all retirees. Understanding when to take your Social Security benefits and how to use them in retirement can help you better manage your money in different accounts.
What Other Retirement Benefits Should I Consider?
Your employer-sponsored retirement, such as a 401(k) and 403(b) plan, or your IRA may have different benefits or withdrawal rules. You’ll also want to consider how income from these plans interacts with your other benefits, such as disability or long-term care insurance.
Managing Your Retirement Investments and Taxes
Planning your long-term investments and optimizing taxes is vital to getting an accurate view of your retirement savings. However, they are often complex topics to handle. Focusing on them now, with a trusted advisor, can reduce stress down the road.
How Should I Invest my Retirement Savings?
There are multiple ways to invest your retirement savings—the question is, what are you comfortable with? Your investments should align with the level of risk you are comfortable with, which can change over time. An investment portfolio is about more than performance. If your portfolio seems to be doing well, but it keeps you up every night with anxiety, is it worth it?
How Can I Minimize Taxes in Retirement?
Taxes are a considerable concern in retirement. You can, however, reduce or mitigate your tax obligations through tax-deferred accounts, such as 401(k)s and traditional IRAs. Planning for taxes now will help you to minimize them in retirement.
Planning for Healthcare and Long-Term Care
Healthcare expenses are often unexpected, but they become more likely as one ages. Planning for long-term care now will give both you and your loved ones stability during trying times.
How Much Will Healthcare Cost in Retirement?
The costs of healthcare in retirement usually rise. But you should also account for physical and mental healthcare. Planning ahead for these expenses can reduce your financial stress and improve peace of mind while in retirement.
Do I Need Long-Term Care Insurance?
You may require long-term care. Strokes, heart attacks, bad falls, and chronic illness can all make long-term care a reality for many retirees. Having long-term care insurance can help offset these costs and ensure you have the help you need in your golden years.
Creating a Sustainable Retirement Plan
Your retirement plan should be easy to follow in the long term. The following questions are simple to answer but can reduce the likelihood of letting a plan become outdated.
What is the Best Way to Manage my Retirement Savings?
Not all retirement savings accounts are created equal. Tax obligations, withdrawal limits, and earned interest are all factors in determining which account to draw from first.
How Often Should I Review and Update my Retirement Plan?
Your risk tolerance and retirement goals may change over time. Reviewing and updating your plan at least once a year is often a good practice. You may want to update it more often as your retirement draws near.
Working with a Financial Advisor
The financial advisor you work with will significantly impact your financial stability. Advisors may be commission-based or fee-based, and each advisor tends to specialize. Finding the right fit for your retirement funds is essential to success.
What are the Benefits of Working with a Retirement-Focused Financial Advisor?
There are many benefits to working with a retirement-focused financial advisor, such as long-term investment advice, tax planning, and expertise in legacy planning. Financial advisors can help you sort through the complexities of retirement accounts, state and federal taxes and laws, and any other nuances that can complicate retirement planning.
Estate Planning and Legacy
Your legacy goes hand-in-hand with retirement. In many cases, you’ll want to leave something behind for people or causes you care about. That’s where estate planning comes into play.
Have I Made an Estate Plan?
Planning your estate, such as creating a will and trust, can be emotionally challenging and mentally demanding. Not only are you calculating and dividing your assets, but you are also focused on how to best care for your loved ones. A financial advisor can ease the process, help you find the most efficient way to transfer assets to heirs, avoid probate, and simplify the process for those you care about most.
Securing Your Retirement Future
Finally, it’s important to consider in advance how you will react to unexpected expenses or financial challenges. Delving into how you will safeguard your retirement funds is the final step to ensuring a plan will be successful.
What Steps Can I Take to Ensure a Secure Retirement Future?
There are a few steps you can take today to secure a solid future in retirement:
- Reduce expenses today
- Write out your goals for retirement
- Determine how long you are likely to live in retirement
- Determine when you plan to retire
- Diversify your income streams for retirement
- Work with a trusted advisor, preferably a fiduciary
- Review your retirement plan regularly
How Can I Protect my Retirement Savings from Unexpected Expenses?
It can be challenging to protect your retirement account when there are unexpected expenses. But it’s not impossible.
An emergency or safety fund that covers your salary for 6-12 months can help you offset potentially urgent expenses. Reducing or eliminating debt, keeping access to a line of credit, and having an overall financial plan can help you prepare for the unexpected.
Next Steps
Regarding retirement planning, it’s better to leave no stone unturned. The most successful plans are ones that you feel confident in. And your financial advisor should be able to answer every single question about retirement listed here.
If you don’t have a financial advisor yet or simply want a second opinion, contact our team of fiduciary experts for additional insight. Or, if you’re not ready to book a call, check out these 20 questions to ask a financial advisor in your first meeting.
Greg Welborn is a Principal at First Financial Consulting. He works with high-net-worth individuals and privately-owned businesses on financial planning issues including investment, retirement, and tax planning, among others.
Greg Welborn is a Principal at First Financial Consulting. He works with high-net-worth individuals and privately-owned businesses on financial planning issues including investment, retirement, and tax planning, among others.
