When I worked as a financial adviser, we had many retired clients. Interestingly, a lot of our retired clients actually never worked with a financial planner until they retired. Based on our experience, we’ve learned some key questions to ask a financial planner about retirement, before retirement.
Most of these people who came to us had worked hard, made good financial decisions, and had enough money to live on while they were working. And if you’re like these clients, you might not need a financial planner. At least not while you’re still working.
And questions start to come to your head. Tough questions.
Believe it or not, some of the most important decisions come in your retirement years. So it’s a good idea to think about those post-retirement questions. When you do, consider whether you need a good financial advisor to help you with your financial planning.
Below is a list of important questions we’ve helped our clients answer as they evaluate their retirement goals.
Question #1: Can we afford to retire?
By far, this is the biggest retirement planning question we would get from new clients or prospective clients. However, there is more than one way to ask this question.
In fact, the question might look like one of the following questions:
- I want to retire by a certain date.
- I want to go to a part-time job, then eventually retire.
- If I keep doing what I’m doing, can I afford to retire in XX years?
- How much money do I need to retire?
Regardless of how this question is asked, there is no simple answer.
And while the answer depends somewhat on how much you’ve saved, it is more dependent on what you plan to do in retirement.
Question #2: What can I afford to do in retirement?
The answer is pretty simple. The less you plan to spend in retirement, the sooner you can retire on your own terms.
But people don’t always want to do less. Especially when they’ve worked for 20, 30, or even 40 years.
When you’ve worked this long, odds are that you’ve probably made sacrifices along the way. If you’re a parent, you undoubtedly sacrificed a LOT to help your children succeed. Retirement is supposed to be YOUR time, right?
Our clients used to feel the same way. Most people want to travel to places they’ve never been.
People who are collectors or hobbyists want to be able to spend more on their passions. Charitably inclined folks want to contribute more or spend more time with the causes they support.
Virtually every parent who has adult children wants to spend time with their grandkids. Or is patiently waiting to become a grandparent.
Our goal was to help our clients become confident that spending money on the important things didn’t compromise their retirement portfolios. One way we do that is to help them understand the amount of money they were spending.
Question #3: How does my cash flow work in retirement?
For most of our adult lives, cash flow works like this:
- You get a job (or own a business) that produces income
- You spend money on things you need
- You save the difference in a retirement account
Done correctly, your net worth eventually grows. At some point, your retirement savings are enough to support your long-term goals. You feel confident that you have enough to live out the rest of your golden years.
But in retirement, your cash flow changes. Unlike our grandparents’ generation, most of us don’t have a pension to fall back on.
As a result, we have to generate retirement income from our retirement portfolios.
Investment advisors usually help their clients with this by designing an investment portfolio that supports their financial goals. From there, the financial advisor creates a cash flow that provides enough money to meet the client’s financial needs.
Since most people are used to living on a paycheck, this feels a bit more natural. As the financial advisor occasionally rebalance the investment portfolio, they will either:
- Set aside additional cash as the client needs it, or
- Invest excess cash as part of their investment management strategy
Of course, in order to ensure the most efficient cash flow, you should account for taxes.
Question #4: How can I keep my taxes as low as possible?
This is an interesting question, especially since most people think that this is a question for your accountant or tax professional. The right financial advisor might believe there are two dimensions to tax planning:
- Keeping taxes low in the current tax year
- Minimizing the tax that you pay over the course of your lifetime.
Throughout your career, most of your focus is on keeping your taxes down in the current tax year.
Perhaps you had been contributing to your IRA or 401k. Likely, you were doing this likely doing so because there is a current-year tax benefit. Unless you’re contributing to a Roth account, and hoping to participate in tax-free investment growth in your Roth IRAs.
A good financial advisor will help people who are charitably inclined. There are many opportunities to contribute to charity in a tax-efficient manner.
The right advisor will help their client find the best way to contribute, given their financial situation. That helps the client feel that more of their hard-earned money is going to support the causes they feel passionate about.
When your financial planning focuses on Roth conversions and charitable giving, it naturally answers another commonly asked question.
Question #5: What about my IRAs?
Having spent most of their lives saving into their IRAs and 401k plans, many people naturally have questions about them as they retire.
- Do I have to withdraw money when I reach age 72, even if I don’t need it?
- Can I contribute to charity instead of taking out my required minimum distribution?
- How can I keep taxes low?
If your retirement plans make up a large part of your net worth, a good advisor will help you plan for that. Here are some questions that a potential financial advisor can help their clients through:
How do I set up a Roth conversion strategy?
In retirement, most peoples’ taxable incomes decrease significantly as they no longer have wage or business income. As a result, there is a great opportunity to move money from traditional 401(k) accounts or IRAs to Roth accounts.
Since withdrawals will eventually be taxed in most cases, moving them to a Roth account will allow withdrawals come out tax free.
- Develop a long-term Roth conversion plan for each client,
- Evaluate taxes each year to ensure you’re converting the proper amount
- Incorporating any major changes into your plan
What about charitable giving?
You shouldn’t give to charity just to reduce your taxes. However, if you’re charitably inclined, your advisor might be able to incorporate tax-efficiency into your gifting plans.
There are several ways you can do this:
- Qualified charitable distributions.
- Donor-advised funds
- Gifting appreciated assets, such as stock or mutual funds
Listening for these types of strategies is a good way to understand if your financial planner is a good fit for your financial planning needs. That leads us to one of the most important considerations facing retirees.
Question #6: When do I take Social Security benefits?
Generally speaking, the longer you wait to take Social Security benefits, the better off you’ll be. But it’s not always the case.
Regardless of what the numbers say, Social Security is a very sensitive topic for many people. And a financial professional should set aside time to discuss the emotions you might have about your Social Security decision.
Because it might be the biggest financial decision you make in retirement. Your financial planner should take the time to help you understand this set of questions about Social Security:
- Are you better off taking Social Security early or later, in your unique situation
- How can you support your living expenses if you delay Social Security
- How would taking Social Security early impact your retirement plan
- In which situation(s) are you better off NOT waiting until full retirement age
Finally, your financial planner should set aside time to discuss your long term care plan.
Question #7: What about long term care?
No one likes to talk about long term care. Having this discussion presumes what many people dread the most:
“Who’s going to take care of me when I get old?”
And no one wants to think about that.
But getting old happens. And long-term care can be expensive. Fortunately, there is a wide variety of long-term care options for most people.
Of course, it takes time and effort to research and discuss those options. A good financial planner will their clients understand how their long-term care plan fits in their overall retirement plan.
How do I find a good financial planner?
If you’re reading this section, it’s probably because you haven’t found a financial advisor yet. Or maybe you’re not getting the financial services you need from your current adviser.
Either way, here are some things you should look for when you obtain the services of a professional financial advisor.
Is he or she a Certified Financial Planner?
A financial planner who has obtained the CFP® designation stands out from the crowd for several reasons.
A CFP® has experience and education in the major financial planning topics.
In order to obtain the CFP® designation, a candidate must take coursework in the following topics:
- Financial planning
- Investment management
- Insurance planning
- Retirement planning
- Estate planning
- Tax planning
Additionally, a candidate must take a capstone course. This is where the candidate demonstrates their knowledge of the financial planning process. After this coursework, the candidate must take a comprehensive exam on these topics.
Finally, the candidate must meet either of these minimum experience requirements.
- 2 years experience working under someone’s supervision
- 3 years experience if serving clients on their own.
A CFP® has to keep current on their financial education.
But not only does a CFP® have to meet these criteria, they have to maintain their education. A CFP® has to complete 30 hours of continuing education every two years in order to maintain their certification. And 2 of those hours must be in a “code of ethics” CE program approved by the CFP® board.
Many CFP® certificants go beyond the designation.
The CFP® designation is considered the premium designation in the financial services industry. But many CFP® holders go above and beyond.
Perhaps they want to stand out in a competitive industry. Or they’re looking for skillsets to help them deliver value to their clients. Either way, their continued investment in their education can be your gain.
For example, when I was a financial planner, I became an IRS enrolled agent (EA). I became an EA because I felt that tax planning was an important focus item for many of my clients. By going through the process of obtaining this designation, I forced myself to learn a LOT more about taxes than I would have simply by keeping up to date on my CFP® credits.
But education and experience might not be enough. Here’s another question you should ask your financial advisor.
How do you get paid?
The financial services industry is a very confusing one. And compensation for financial advisors varies across the board.
But the two main ways an advisor is paid is through either financial planning fees or commissions on the financial products they sell.
A lot of people will say that fee-only financial advisors are the best. A fee-only financial advisor does not accept commissions on the investment products they recommend for you. They might charge a flat fee, an hourly fee, or a percentage on the investment assets they manage for you.
The truth is, I’ve met good financial planners who are not fee-only. And I’ve met bad fee-only financial advisors.
So you should ask your advisor how he or she is compensated for the work that they do on your behalf. Many advisors post their fee schedule on their website.
If it sounds like a sales pitch, then you’ll know it.
How does your financial planning process work?
You can learn a lot about a potential advisor simply by asking how their process works.
For example, some financial planners build a comprehensive financial plan up front. From there, they help their clients identify the most important financial planning needs. Then they work through the plan like a checklist.
Others have a standard process that they guide their clients through. Yet others help their clients with the most pressing topics, then build a list of recommendations for the client to implement on their own.
What’s your investment philosophy?
Some advisors have a standard process that they apply to everyone. Others might tailor their investment strategy for each client.
But every advisor should walk you through how they build their clients’ investment portfolios. And how those investments improve their clients’ financial lives.
What types of clients do you specialize in working with?
As a client, it’s important for you to feel like your advisor has experience. Relevant experience. In working with people just like you.
In today’s world, specialization is helping advisors do just that. Whether it’s working exclusively with dentists, government employees, or people who have suddenly inherited wealth–there’s an advisor that can help you.
So don’t settle for the advisor who gives you an overly generalized answer. That should be a red flag.
If you find yourself wondering what life looks like in retirement, just know that you’re not alone. Even if you’d DIY’d your finances your whole life, retirement presents unique challenges that you’re probably facing for the first time.
There is no right answer. Just the answer that works for you. So do your due diligence.
Talk to some financial planners.
Come up with a list of questions.
The right fit for you will be the one whose fees seem reasonable and whose process resonates with you.
After retiring from a 24-year career as a Naval officer in 2017, Forrest became a financial planner to help people achieve success in managing their personal finances. In 2022, he sold his partnership stake in his financial planning firm to focus on helping people full-time through his writing.
Featured in: Forrest’s writing has been featured in the following publications: Forbes, Military.com, NerdWallet, Yahoo Finance, The Military Guide, The Military Wallet, Christian Science Monitor, and many other publications.
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