Four Reasons To Hire A Retirement Advisor
Given The Great Resignation of 2021, when U.S. employees left jobs voluntarily in record numbers, you may not be surprised to learn that more than half (50.3%) of all American age 55 and older considered themselves retired as of the third quarter 2021.1 Effective retirement planning helped many make an early (before Social Security's full retirement age) withdrawal from the workforce. According to the Society of Actuaries,2 roughly two out of five retirees (39 percent) worked with a planner or advisor. Deciding when to retire is just one of the many financial decisions retirees make. If you plan to retire within the next decade and currently serve as your own retirement consultant, a good question you might ask yourself is, "why haven't I hired an advisor yet?" Let's look at four of the most common reasons those approaching retirement decide to work with an advisor.
1) Done with DIY - Many working adults feel content to invest independently, especially when the market is good and the goal is to grow the assets. The tricky challenge comes when transitioning from growth to new objectives like protection and growth. Retirees need protection for short-term needs and growth to hedge against inflation and potentially leave a legacy for charity or future generations. That protection switch should occur somewhere between seven and ten years from retirement. So when transitioning from the accumulation phase, consider these three questions before continuing to go it alone.
- Do you feel proficient with your knowledge of asset allocation, rebalancing, and tax-efficient investment strategies?
- Are you willing to commit to investing time to monitor the stock market to make decisions about what and when to buy and sell?
- Are you comfortable setting up your income stream in retirement to receive regular distributions from various accounts?
If you did not answer yes to all three of the questions above, you might not want to manage your investments. However, if you find trading a fun hobby, manage a portion of the assets you can afford to lose.
2) You Get What You Pay For - Retirees who believe it's better to leave some jobs to an expert hire financial advisors, and for good reasons. One of the best reasons to hire an advisor is to avoid acting on impulse and trading at the wrong time. Is it worth the fees to take the emotions out of investing? Studies say, "yes!" According to Vanguard research3 and other academic papers, "behavioral coaching may add 1% to 2% net return." Another report4 found that "the average stock-fund investor's inclination to buy high and sell low cost them 2.02% annually." Beyond the emotional aspect of investing, retirees who work with a fiduciary advisor often benefit from having lower-cost institution-class investment funds within their portfolios. Some funds, such as DFA, only sell mutual funds and ETFs through advisors. Also, advisors often have sophisticated research to support their trading to make the best decisions about when to buy, sell, or hold.
3) Help With Social Security - When to file for Social Security is one of the biggest questions for those approaching retirement. But there is more to the Social Security equation than just the date to file for benefits. Tax planning plays a significant role during the retirement years. A conversation with a financial advisor could include Roth Conversions, the Social Security tax torpedo, and Medicare IRMAA surcharges.
4) The Trusted Relationship - Finding an advisor is as much about the personal chemistry as financial philosophy. Fiduciary advisors build their reputations on delivering service at the highest level of care and always putting the interests of their clients first. By working with an advisor, future retirees benefit from having a partner to consult with on ideas and a sounding board for decision-making. Advisors also lead and guide in planning that their clients may not have considered.
Finding a trusted advisor can take time. If you ever feel rushed into making a decision, take a step back and ask more questions. Ask why they got into this business. Find out what motivates them to do this work. Did they ask you good questions? Did they speak down to you, expecting you not to understand or the opposite? Did they speak in a language over your head, and if so, did they take time to explain concepts you didn't understand? Did they have a clear mission and philosophy for managing investments? Do you agree with that philosophy?
For over two decades, the fiduciary financial advisors at Hurlow Wealth Management Group have helped clients find clarity, feel confident, and achieve comfort in retirement. If you're done with DIY, believe that you get what you pay for, need help figuring out Social Security, and/or looking for a trusted relationship, schedule a FREE introductory call today.