Question: I am 60 years old and essentially retired a year ago when I was 59. I own my own house, have about $550,000 cash in various cash and term deposits, and had a touch over $1.5M in a pension. I converted the $1.5M to a fund (60% balanced, 40% conservative), and I’m drawing down 3% since July of this year. The fund manages investments under balanced and conservative arrangements, and I feel that my pension and cash are straightforward and as such do not require a financial adviser. Is this a sound proposition or should I seek professional help from a financial planner?
Answer: Pros we spoke to said there might be some areas of concern with how you’re handling your money — and you might want to speak to a financial adviser, even if it’s to get a one-time review of what you’re doing to ensure you’re on track. (You can use this free tool to get matched with a fiduciary financial adviser who might meet your needs.)
“It might be worth getting a periodic once-over of your comprehensive financial picture, especially as you approach Medicare eligibility. In addition, if you’re in low-income years, there may be value in converting some of the former pension assets to Roth, while you’re in a low tax bracket,” says certified financial planner Cristina Guglielmetti at Future Perfect Planning.
Have an issue with your financial adviser or looking for a new one? Email [email protected].
While you’ve taken proactive steps to structure your portfolio, managing finances can be complex, especially when managing your own funds. “Market conditions can change and having a professional who can provide advice during turbulent times may be beneficial. Many make the mistake of letting their emotions get the best of them and make decisions they later come to regret,” says certified financial planner Ryan Haiss at Flynn Zito Capital Management.
Indeed, there are many other areas where a financial planner can assist as well. “They can create a tailored plan that aligns with your specific needs and objectives. This can include a review of existing investments, guiding through estate planning strategies, discussing tax-efficient strategies to maximize income and minimize tax liabilities and more,” says Haiss.
No matter the fee schedule, a financial planner can certainly provide additional help to optimize your financial path. “A financial planner could help determine if a Roth conversion plan would be beneficial. With $1.5 million in a tax-deferred account and with only modest withdrawals, eventually required minimum distributions for the account will be significant and result in higher tax rates and potentially Medicare IRMAA surcharges,” says Matt Hylland, financial planner at Arnold and Mote Wealth Management.
In addition to a review of your current asset allocation and costs associated with the pension, certified financial planner Jean Keener at Keener Financial Planning, says, “It’s also a good idea to ensure that you have accounted for the potential costs of long-term healthcare over the course of retirement. If you don’t want to invest in ongoing investment management, a fee-for-service financial planner could provide an initial assessment on a fee-only basis with the option to return for future reviews.”
Ultimately, being fully retired at 60 means you could need enough money to make it through 40 more years. “Spending some time with the right adviser now to position your finances for the long run means you won’t be scrambling for answers when it’s too late to make chances,” says certified financial planner Lea Ann Knight at Better Money Decisions.
Consider scheduling a no-cost, no-obligation meeting with a financial planner (more on what to look for in an adviser below) so that you can explore options while transparently understanding the adviser’s compensation structure.
“At a minimum, you may want to pay a financial planner hourly for their services to ensure you’re on the right track,” says Haiss. While pricing for hourly planners will vary depending on where you’re located and the complexity of your case, hourly planners tend to charge between $150 and $450 per hour. (You can use this free tool to get matched with a fiduciary financial adviser who might meet your needs.)
Potential red flags
As far as potential warning signs with your current setup, certified financial planner Jim Hemphill at TGS Financial says three immediate concerns strike him off the bat. “The first is whether it’s prudent to keep so much money in cash equivalents. Right now short-term rates are high but as recently as 2 years ago, cash equivalents yielded less than 1%. What’s your strategy if the Fed is successful at reining in inflation and your $500,000 yields income of less than $10,000 per year.”
Another concern is about whether there’s enough overall growth in the portfolio to preserve purchasing power over what’s likely to be a 2-to-3 decade retirement. “Based on the numbers above, only slightly over the $500,000 of $2 million appears to be in stocks, while the balance of almost $1.5 million is in cash equivalents, conservative investments or the bond component of a balanced portfolio. This may be too little growth for a long-term retirement,” says Hemphill.
Finally, he says you might also want to look at whether some part of the $1.5 million might prudently be committed to an immediate annuity to provide an actual lifetime pension benefit. “An immediate annuity is an insurance company contract to provide income for a period certain or for a lifetime. Such payments are very secure but have no inflation protection and can be a complement to a diversified portfolio while transferring the economic risk of longevity to a third party, the insurance company,” says Hemphill.
What to look for in a financial adviser
While there are many types of advisers to choose from, working with a fiduciary can help ensure that you’re engaging with a professional who puts your best interests first. Similarly, working with a fee-only certified financial planner who is only paid by the client, means they’re not working for commissions and have little incentive to recommend products that aren’t best for you.
Fee-only advisers work under different fee structures like hourly, flat-rate and assets under management (AUM), all of which vary depending on location and complexity of finances. Hourly planners tend to charge between $150 to $450 an hour, while flat-fee services typically range from $2,500 to $7,500 and 1% AUM is the average cost for a planner charging based on assets.
To get a better sense of what an adviser may be able to offer you and what you can expect from their services, consider asking prospective advisers these 8 questions.
Have an issue with your financial adviser or looking for a new one? Email [email protected].
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