“Why would someone like me need to work with a financial advisor?”
This was my question a few years ago as I approached retirement from a large energy firm. I could look after our lifetime savings myself. After all, I had an MBA and a long-term interest in investing. I would save fees. We wouldn’t need to bare the details of our finances to someone neither my wife nor I knew.
You may have that same self-confidence. Many well-educated professionals in or approaching retirement don’t believe they need to work with an advisor. Or, they think they don’t need much more than a stock broker who will invest for them.
Sometimes you ask a question, only to find you have others. In our case, four related questions showed up. Working with an advisor (who does financial planning as well as investment management) seemed to be a common answer. If you haven't yet asked these questions yourself, do so now.
1. How will my spouse handle our finances if I should die first?”
My wife, Geni, is a great woman, beloved by all who know her. But she’s neither interested in nor adept at managing finances. Geni thinks computers are misogynistic. She doesn’t have a good sense of where I keep important papers. And she's made it clear to me that she isn't interested in tracking our portfolio or preparing tax returns.
Should I be out of the picture, Geni would have a hard time pulling all the financial pieces together. Depending on her health at the time, she might also have trouble finding someone trustworthy to manage her affairs.
Working with a trusted financial advisor takes the burden off a surviving spouse. It also provides continuity for family members or others who may be responsible for settling your estate.
2. “Will our money last longer than we will?”
Rules of thumb suggested we’d be okay, given our spending plans and our assets. But I envisioned spending more in the early years of retirement and less as we aged. On the other hand, perhaps we’d need even more in our later years if we became disabled or seriously ill.
It got more complicated, trying to figure out how long our money might last. I thought about factors that could change over our remaining lifetime—things like inflation rates, tax rates, rates of return on investments, and so forth. It began to feel as if I were starting on a cross-country road trip without a GPS or a road map, and with a faulty fuel gauge.
Advisors who do financial planning can do simulations of your financial future. Their models illustrate how your savings may grow despite the impact of inflation on your expenditures in years to come. Their interactive software can help determine if it's likely that there will be money for that special trip or second house. Or, give you that heads-up that your dreams are unrealistic and you'll need to cut back or work longer.
3. “How good an investor am I, really?”
Seasoned investors say one should not confuse brains with a bull market. I’d made what I thought were good investment decisions over the years. Buying was easy. But I was often tempted to hop into the latest trendy technology or biopharmaceutical company. I also understood that there were assets I should invest in that I knew little about. Emerging markets? Global bond funds? What did I know about these? Deciding when to sell was more difficult. It’s tough to sell and realize a loss, even when your head says there are better investments than the loser you’re in.
I had found myself influenced by my emotions. It was fear of losing out or of losing more. I knew I wasn’t as objective in making investment decisions as I should be. They weren’t just investments anymore. These decisions revealed my competence. My analytic abilities. Me! The thought of depending on my investing skills for the rest of our lives unnerved me.
Investment managers have a leg up on most individual investors. Few of us are prepared to do the research or focus our energy on the markets and economic developments. Perhaps most importantly, such professionals should be able to evaluate our portfolio without our biases or the baggage of emotional connections to our previous decisions.
4. “What good ideas are we missing out on?”
As you contemplate retirement, all those dollars in your 401(k) or your IRA shout for your attention. But there’s a veritable Greek chorus of other issues quietly singing in the background. Think about taxes, estate planning, charitable giving, the possibility of needing long-term care, educating the grandchildren, claiming Social Security. These are all aspects of retirement you need to consider.
Would I have the resources or energy to do the necessary research by myself? We could try to find answers on our own, or we could work with an advisor who deals with such topics on a daily basis. The answer seemed clear—let's get some help.
Ask these four questions of yourself.
If you have good answers, perhaps you don’t need an advisor to help you navigate through the eddies and shoals of retirement. White water rafting can be exciting, especially if you don’t mind getting wet. But if you’d prefer a smoother journey, keeping yourself and your other passengers dry and focused on the scenery, contact a reputable, trustworthy financial advisor to serve as your guide. Like us, you may find that choice to be a rewarding answer to difficult questions.
Finding answers to these questions not only led us to work with a financial advisor—Investec Wealth Strategies—but also resulted in my becoming an advisor myself. But that journey is a story for another day. In a follow-up blog, I'll provide some thoughts on selecting an advisor.