It’s important to consider the value of a financial advisor in retirement from a few different angles. There are unique aspects to retirement planning that you may not be prepared for, even if you have handled your own investments for most of your life.
For starters, switching gears from accumulation — or building your nest egg — to decumulation — or spending it down — is a big turn. Instead of simply investing for long-term growth, you now need to think about how you’ll pull money from your savings in a way that supports your financial needs while ensuring that your money will last. That requires you to consider how your investments complement your plan rather than just how they’ll grow.
Tax implications change, too. Rather than deducting contributions to an account, you need to consider how your withdrawals impact your tax liability. Ideally, you’ll take a long-term approach to your tax planning, so you can increase tax efficiency throughout retirement.
There are also indirect consequences to withdrawing too much in retirement. Those include increased Social Security taxability or higher Medicare premiums due to an income-related surcharge called IRMAA.
[READ: The Maximum Social Security Benefit in 2024 — and How to Earn It]
The Value of a Financial Advisor in Retirement Planning
So what can a financial advisor do for your retirement savings that you can’t do on your own? Depending on what you are looking for from an advisor, your financial skills and interest in managing your own money, valid answers range from “not much” to “a lot.” Let’s go over some of the main benefits of hiring an advisor — and then I’ll explain what I mean by each.
Technical Expertise
This is likely the most obvious benefit of hiring a financial advisor for retirement planning. An advisor who is properly educated, trained and experienced possesses a considerable amount of expertise. That expertise can span a wide array of areas including, but not limited to:
— Sustainable income and withdrawal strategies.
— Investing.
— Tax efficiency.
— Risk management.
— General financial planning considerations.
If you’re asking whether this is something an advisor provides that you can’t get on your own, that requires you to consider your own level of expertise. How much education, training and experience do you have?
Time Commitment
A major benefit of hiring an advisor is knowing that someone is handling everything for you. That includes management of your personal financial plan and investments, but it also goes beyond that.
Let’s go back to that expertise for a minute. I believe that most people of ordinary intelligence are perfectly capable of learning, understanding and applying everything they would need to from a technical expertise standpoint. But do you want to? The reality is that most people don’t. They would rather spend that time becoming better at their own profession or doing something they enjoy. And that’s fine.
I’m sure I’m perfectly capable of learning, understanding and applying everything I would need to fix a dent in my car or replace the roof of my house. I have no intention of doing either. I don’t want to spend my time learning how and will gladly pay to have people with the appropriate expertise do those things for me.
What about the time commitment of staying current with regulatory changes? I’m not talking about awareness that changes are occurring, but digging in to understand their effect on you. Here are some recent examples of regulatory changes I’ve dealt with in practice:
— The Tax Cuts and Jobs Act. Did you know that these tax cuts were enacted? Did you know they significantly reduced personal income taxes? Did you know they expire in 2025? This has a huge impact on near-retirees, and I frequently talk to people who are completely unaware of the Trump tax cuts.
— The SECURE Act of 2019. Oh, and don’t forget the SECURE 2.0 Act in 2022. Do you know what changes those brought and how to incorporate them into your plan? I find that people are even less likely to know about these.
[READ: The Most Tax-Friendly States for Retirees]
Protection From Emotions
Money can be stressful. Dealing with it can elicit strong emotional responses, particularly as it relates to your retirement savings. This becomes more pronounced the closer you get to retirement and need to rely on that money to cover your expenses.
We tend to not make the best decisions when stressed, so having an advisor to guide you can prevent potential mistakes. The classic example here is when people get caught up in the market:
— When markets fall, people are more inclined to be fearful and often sell their investments to avoid losing more money.
— When markets rise, people feel good and are optimistic. The tendency here is to become more aggressive with their portfolio.
These two responses are the exact opposite of what you should do.
Selling when your investments are down just seals in your losses, and becoming more aggressive after the market rises is like swinging where the ball was. Both actions also indicate you probably weren’t invested appropriately to begin with or didn’t have a cohesive strategy that aligned with a plan.
[READ: Should Retirees Follow the 100-Minus-Your-Age Rule for Stock Allocation?]
What’s Your Perspective?
With all of that said, consider your own perspective.
If you are inclined to do things yourself, think you have the appropriate expertise and are willing to keep up with changing regulations, you may decide that a financial advisor can’t do much for your retirement savings that you can’t do on your own.
Does the idea of turning all of that over to someone else appeal to you? Do you think you may not have the necessary expertise and would rather spend your time and effort on something other than obtaining it? Would you rather spend your free time on your hobbies or with your family? In that case, a financial advisor can do a whole lot for you.
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Ask a Financial Pro: What Can a Financial Advisor Do for My Retirement Savings That I Can’t Do on My Own? originally appeared on usnews.com
