When Is The Right Time to Hire A Retirement Advisor?

When it comes to financial planning, setting up a retirement plan is often overlooked. The millennial investors yearn to spend and are easily overtaken by the new-age emotions of You-Only-Live-Once (YOLO) and Fear-Of-Missing-Out (FOMO). Young investors tend to look more towards achieving short-term goals first, then moving on to mid-term savings and debt repayment, and to saving towards other long-term needs. It is a common misconception that long-term means you have more time at hand to save up. The truth is, you have more time to achieve the goal, but not to save towards it. Getting an early start on planning for your retirement can allay many of your worries along with providing you reasonable flexibility to work with a plan. The compounding power of money makes your wealth grow bountiful the earlier you start investing. If retirement planning feels too distant and overwhelming, consult a retirement advisor who will help you navigate the road to retirement planning with ease and sound strategies.

This article explains when it is the right time to hire a retirement advisor if there does exist a right time to hire one,  whether it’s too late for you to hire one, and the cost and your course of action once you decide to go forward with working with a retirement advisor. The objective is to equip you with useful information which can assist you in decision-making. But before we get to that, let’s explore who a retirement advisor is.

Who is a Retirement Advisor?

A retirement advisor is a financial professional who helps and guides clients plan their financial journey so that they may live a comfortable life post-retirement. The advisor’s focus is to empower the client financially to bear the cost of living after retirement when there may not be a steady income or a salary coming in. There are several titles that financial advisors use, who may be also qualified to provide retirement-focused planning advice. Some of the common ones you may encounter are:

  • Certified Financial Planner
  • Retirement Income Certified Professional
  • Registered Investment Advisor
  • Chartered Financial Analyst

These designations are indicative of an advisor’s core competency and expertise. Also, these titles have to be earned. One has to enroll in and pass specialized exams to be awarded these titles. While the titles may seem generic, these bands of financial advisors are highly qualified and may be able to derive from their vast subject knowledge to find specialized solutions to meet the requirements of your retirement account.

When Should You Hire a Retirement Advisor?

There are certain signals which indicate that it would be in your best interest to hire a retirement financial advisor. You should lookout for a retirement advisor when:

  • You don’t have a roadmap that leads to financial independence. You’re lost and you take random, unplanned steps which do more harm than good to your financial condition.
  • You do not know or understand how to handle finances. Some people are simply not equipped with the skills to handle money. They need someone to manage it for them and help them lay out a complete plan. If you fall in this category, retirement planning with the help of an advisor becomes all the more vital.
  • You’re great at managing money, but you want a second, unbiased opinion. You’re the kind who is open to advice that could benefit you and look at things from a fresh perspective.

Most people fall into one of these categories, or eventually will. If you have a hard time saving, if you belong to a lower income level, if you’re facing issues consolidating your portfolio, try and look for help from a professional – especially if you have a difficult time planning for your financial future.

It is never too late to get advice from a professional, especially if you’re struggling with your finances. The advantages of hiring a retirement advisor greatly outweigh the money spent on hiring one.

When is the Best Time to Hire a Retirement Advisor?

A younger person, in their 20s, will have far fewer liabilities and responsibilities than a person in their 40s or 50s. Even if the income of a 20-something is not huge, they can start preparing for retirement. Hiring a retirement advisor early on is an investment in itself since it will help you make the best financial decisions for yourself throughout your earning years. Starting the preparation early and retiring peacefully is the key.

Any retirement advisor will tell you that when you start early, you give your money more time to compound and multiply. With hiring a retirement advisor sooner in your life, you can chalk out a plan for your retirement and stop worrying about ifs and buts. You will easily be able to have a secure future by establishing new revenue streams and setting up passive investments to serve you well during your retirement. Not to forget, there are tax benefits that one gets as part of retirement investing that your retirement advisor can explore for you.

And while it is advisable to start early, it is never too late to hire a retirement advisor. One can do it at any point in their life. Someone in their late 30s or 40s is likely to be bound with mortgages, children’s education, and weddings. Aging parents also seek your attention which makes it less likely for you to be able to contribute a lot to your retirement accounts. We reiterate it’s never too late to pull your socks up and engage with a retirement advisor to secure your future.

What to Expect From a Retirement Advisor’s Financial Services

It is essential that you and your advisor are on the same page. Miscommunications can lead to financial disasters, and it is best to have it all out in the open before signing on a deal with your prospective retirement advisor. That said, some of the general expectations would be:

  • Helping you identify and work to achieve your retirement goals.
  • Bring to light the potential gaps that could hinder your retirement planning.
  • Helping you with tax planning and maximizing benefits in 401(k) or individual retirement accounts.
  • Advising on rollover into IRA or Roth IRA
  • Advise on planning the investments from the IRA with tax minimization strategies while corpus grows
  • Devising a strategy for debt management
  • Guiding you in building your portfolio, and advising a balanced asset allocation.
  • Money coaching to ensure behavioral changes to become prudent with money as you go closer to retirement
  • Determining how social security benefits may fit into your retirement and tax plan, and find ways to maximize the benefits
  • Guiding and advising on other important financial decisions.

Simply put, a retirement financial advisor is your guide. Looking at the relationship with this perspective will make it easier for you to choose a retirement advisor. The advisor’s job is to prioritize and quantify your goals in a realistic and achievable fashion.

1. Retirement advisors help with setting your retirement goals

It is crucial to have an approximate idea of the amount of money one needs to enjoy their second innings without having to depend on someone else. Of course, inflation and the rising cost of living must be taken into account. These are the modalities that a retirement advisor can help you out with.

However, you must set a retirement goal. Here are pro tips on how to set your retirement goals:

  1. Analyze your situation: Your current financial situation will give you an estimate of chalking out a plan that can secure your future. Take stock of expenses, savings, taxes, mortgages, and insurances.
  2. Analyze your risk appetite: Assessing your risk profile will help you and your advisor make better decisions on investing money for the future.
  3. Understand your lifestyle: A person with a modest lifestyle will need less money than someone with expensive taste during retirement. Understand if you want to save every penny right now and spend it all in your retirement.
  4. Assess your health profile: You will need multiple, fool-proof health and term insurances along with a corpus to help you if you are someone with a lot of illnesses.
  5. Set a budget: Make an estimated budget you will need each month with inflation in the calculation to set a goal.
  6. Evaluate your investments: Calculate the number of money insurances and investments will give you after you pay taxes on them.
  7. A retirement advisor can help you with all these variables and can help set you up on the path of a comfortable retirement.

2. Retirement advisors can help you understand retirement accounts

Based on a person’s retirement goal and employment situation, there are a plethora of retirement accounts that can be opened, some offered by employees, some self-owned and operated. However, all accounts come with some benefits and there are clauses such as limitations for a deposit, penalties for withdrawal, taxation regulations, required mandatory distributions (RMDs), etc., that your retirement advisor may be best equipped to tell you about. Common types of retirement accounts include:

  • Traditional IRA: Anyone with an income can open an IRA account and claim a tax deduction for putting money in the account.
  • Roth IRA: Unlike traditional IRA, depositors will have to pay taxes on the amount deposited in the account. However, no tax is deducted upon taking the money out of the account.
  • 401(k): Offered via an employer, this account lets both the employee and the employer make equal contributions. A larger chunk of money grows tax-free in this account.
  • SIMPLE IRA: Offered by small businesses to their employers, depositors do not have to pay a tax on the amount withdrawn during retirement.

Retirement advisors will understand their clients’ goals for retirement and suggest the right retirement account that best suits their interests. They can advise an investor on what IRA provider to opt for, what type of IRA account to open, and what terms and conditions to watch out for. Retirement advisors will also help you decide to roll over your 401(k) account or not.

3. Retirement advisors help with the rollover of your 401(k) account into an IRA

A 401(k) account is generally offered by the employer where a person works, while an IRA account can be set up individually. The 401(k) account has certain tax advantages that differ from what’s liable on an IRA. The 401(k) may have a matching contribution by the employer- something a normal IRA account does not have. However, IRA accounts give investors more flexibility with their money and quicker access to funds. There is a facility provided by the IRS to roll over your 401(k) into an IRA. This is however subject to various requirements and regulations.

[See: Should I Roll my 401(k) into an IRA?]

For individuals who are self-employed, or have an employer that does not match the contribution in the 401(k), it may be better to roll over to an IRA. However, the funds in both 401(k) and IRA accounts grow tax-free. Roth IRA is another option of a retirement plan with different tax implications and withdrawal rules.

Taking a decision to set up such accounts, operation of the accounts, figuring out contributions and withdrawal limits, etc., can be overwhelming. Retirement advisors are the experts you can reach out to for advice on whether you need to rollover your 401(k), whether you need a Roth account, how a pension plan fits in your financial goals, how much contribution you must make for a comfortable retirement with sizable wealth, etc.

4. Retirement advisors help assess and minimize tax liabilities on retirement accounts

Capital gains and income on investments are taxable, irrespective of whether you are retired or not. Retirement fund withdrawals, stock dividends, pension, income from passive investments, social security benefits – all of these retirement funds and more are taxable. What’s more, transfer of estates, business legacy etc., may also carry tax implications for your heirs. One does not want to be paying half their retirement fund to the Government in the form of taxes.

If you hired a retirement advisor at the right time in your life, your advisor could help you formulate a carefully planned out retirement that could leave you with a sizable corpus for retirement alongside minimizing the tax burden on you in your retirement. Retirement advisors may be able to recommend products, suitable to your financial goals and risk appetite, where the maturity amount is free of taxation. Small tips like these can make or break your retirement portfolio – a retirement advisor can help you from tax erosion.

How Much Do Retirement Advisors Cost?

The fees for every advisor varies. Generally, an advisor would charge you in one of the following ways:

  • Annual Retainer: Retirement advisors generally charge a few thousand dollars for a comprehensive financial plan.
  • Percentage of the Assets Invested: You’ll be charged a flat percentage fee on your total account balance. The percentage usually sits between 0.25% to 1%.
  • Hourly Rate: You’ll be charged on a per-hour basis. Rates usually run into a few hundred dollars per hour.

The rule of thumb is to always ask your advisor how he or she is compensated. Some advisors earn their commission or fees from banks and investment companies. So while you may be offered “free” advice, the commission they would earn on your investments would not quite qualify the advice to be free.

How to Choose a Retirement Advisor

Retirement financial advisors can operate either independently or be associated with a firm or a bank. This does not form a basis for any comparison. It may be unwise to make a decision solely based on their business model. When choosing an advisor for yourself, you should focus on the financial goals you want to achieve, your needs, and the kind and degree of assistance you’re looking for.

Remember, this is a financial relationship, and you have to be mindful of whom you decide to work with. The success of the working relationship will also depend on the retirement advisor you choose.

The following factors should be considered when selecting a retirement advisor:

  • The retirement advisor’s professional background, certifications, and experience.
  • Range of services on offer.
  • The fee structure along with clarity on the commission earned.
  • If the advisor is bound by fiduciary duty. If the advisor does adhere to the fiduciary standard, then they are ethically and legally bound to act in your interest.
  • Frequency and mode of communication. How often will the plan be reviewed and adjusted, the period for tracking of financial decisions and asset allocation, and their general availability.
  • Finally, you should evaluate their working style and their approach to financial planning. Ask yourself, are the strategy and style something you’re comfortable working with.

Can I Hire a Retirement Advisor?

Hiring a financial advisor to help you with making sound financial decisions is the best decision you can make. They are equipped with the knowledge and experience to help you realize your own financial goals. Some of us just need that extra push or a helping hand.

A perfect world would be one in which everyone had a financial guide to help with every financial decision. But that is not a luxury everyone can afford. However, it is imperative to look at engaging with financial advisors, especially retirement advisors, as an investment rather than as an expense. They are going to help you establish a solid plan to maximize your gains during your working ages, and hand-hold you through your life, towards a happy and stress-free retirement.

That said, it does not take away from the fact that financial advisors are not cheap. This makes it all the more important for you to make a well-informed decision when hiring an advisor. Doing a cost analysis before hiring a retirement advisor should be something to be considered.

To sum it up

You could be juggling between taxes, regulations, a fickle investment environment, and varying savings strategies. To add to this, you have to have a sound financial strategy to fund your retirement along with keeping a stash of emergency money. The many elements can sometimes be quite a handful.

And while you may not need to hire a full-time financial advisor, getting a retirement advisor on board can help you create a more secure financial future. They can also help you make more objective, unbiased, fruitful decisions.

Just remember to take ample time when choosing an advisor. Prepare a checklist. Don’t go by mere hearsay, and if you sense a lack of transparency – that may be a red flag. Do your research and due diligence to ensure you end up with an advisor that’s truly a good match.

If you’re uncertain of the most suitable financial services for your needs, consider consulting a financial advisor for more information. Use Paladin Registry’s free advisor match tool and get matched with 1-3 qualified financial fiduciaries who can create a customized financial plan for you.

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