There are a lot of things to consider when making one of the biggest financial transitions in your life, and the sooner you start planning for it, the easier the transition will be. So, where do you start?
A financial advisor with experience in retirement planning can help ensure your retirement transition will be smooth and last a lifetime. Whether you already have a financial advisor, or are searching for one, here are five questions to ask to see if you will be a good match before and after retirement.
- 1. Are you a true fiduciary?
A fiduciary has the legal obligation to make you and only you the top priority—there are no side agendas or ulterior motives. (Read our blog post on non-advisors.) If you’re already working with a financial advisor, make sure he or she follows this standard and can even state it in writing. If not, it might be time to start looking for someone who can. This will ensure you’re working with someone who’s fully transparent with you and not out to sell you complex investment products.
- 2. Does your firm hold my money and investments?
To avoid conflicts of interest, an independent firm should have a custodian, ideally a brokerage, that holds securities for safekeeping to minimize the risk of theft or loss. It’s good if a firm contracts with a big institution like Charles Schwab, TD Ameritrade, or Fidelity to hold your money so it can focus on the advising part of managing your portfolio.
- 3. What is your investment philosophy?
It’s important that your investment philosophies and values are aligned when you start working with a financial advisor. Why? Once you have an investment plan in place, you can stick to it and trust your advisor when you approach bumps in the road.
For example, you could want to sell at the bottom of a market cycle because of what the market is doing today, but it might not be the best long-term plan. Your advisor will have your best interest in mind, and can help you think rationally, not emotionally, about the financial decisions you face. We believe investing is all about behavior and choices, which is why we incorporate behavioral coaching into our services.
- 4. Can you help me create an income strategy for retirement?
One of the biggest financial shifts in your life will be from the workforce to retirement, and the strategy for this transition is paramount. This is because you’re moving from making a steady and predictable income to having your income source come from two or three main areas: Social Security, maybe a pension, and your investment portfolio. A successful retirement plan is well-paced, accounts for your income to cover everyday living expenses, and will last the rest of your life. Your advisor needs to be well-versed in retirement portfolios that provide a lifetime of income and communicate this strategy in clear and actionable steps.
- 5. What do you see as the biggest risks in retirement?
It’s important to see how your financial advisor answers this question. There are always going to be risks in retirement—don’t let anyone tell you otherwise. The key is how you manage and react to them.
In general, people have a hard time relinquishing control, which is what investing is all about. It’s taking a calculated risk today to have a more comfortable tomorrow.
When taking risks, it’s important to ask yourself, “what’s my purpose?” and have a strong sense of your goals. The weaker and fuzzier your goals are, the more reactive you’ll be to “expiring facts” that don’t affect your long-term plan. You must have faith and believe in the future.
This is where the partnership with your financial advisor is really valuable. He or she can help you calculate risk versus benefit and ensure you see the potholes in retirement before you stumble upon them. Retiring really is simple: control your emotions and stay on the path.