Coasting in Retirement – Episode 88
Let’s begin with something you may not expect to hear from a financial advisor:
Not everyone needs one.
If you have saved consistently, educated yourself, built a diversified portfolio, and created a plan you feel confident managing, you may be perfectly capable of handling your finances on your own. If you also have the time, discipline, and interest to keep doing that work, hiring an advisor may not add enough value to justify the cost.
That is an honest answer.
The trouble is that many people ask the wrong question when deciding whether to hire an advisor. They ask, “Can a financial advisor invest my money better than I can?”
If all you need is someone to click a few buttons and purchase investments, that is a fair question. Investors today have access to low-cost funds, online brokerage accounts, automated tools, and more financial information than ever before. You do not necessarily need to pay someone simply to build a portfolio.
A more useful question is:
At this stage of my life, would having another professional involved improve my plan, save me time, reduce my chances of making a costly mistake, or give me greater confidence that everything is working together?
That question becomes especially important as you approach retirement. The financial habits that helped you accumulate money may not be enough to help you turn those savings into an income that lasts.
When you are working, the process can feel relatively straightforward: earn money, spend less than you earn, save, invest, and repeat. As retirement gets closer, the questions begin to change.
How much can you afford to spend? When should you claim Social Security? Which account should you withdraw from first? How will those withdrawals affect your taxes and Medicare premiums? What happens if the market falls soon after you retire? If you die first, will your spouse know what to do?
Suddenly, this is not only an investment problem. It is a coordination problem.
Here are five signs that it may be time to consider professional guidance and one sign that you may not need it.
1. You Have Retirement Savings but Not a Retirement-Income Plan
There is an important difference between having money and having a plan for that money.
Someone might say, “I have $1 million in my 401(k).” That is an accomplishment, but it does not answer the next round of questions.
How much will you need to withdraw each year? When will you begin taking Social Security? Which accounts will you use first? How much will you keep in cash? How will you adjust your withdrawals when markets are down?
During your working years, your employer sends you a paycheck. Money arrives in your checking account on a regular schedule, and you use it to cover your expenses. However, retirement reverses that arrangement. Now, you are responsible for creating your own paycheck.
That income may come from Social Security, a pension, an IRA, a 401(k), a taxable investment account, rental property, or some combination of those resources. Deciding where the money comes from, and in what order, can affect your taxes, future income, and how long your savings may last.
If your current strategy is, “I will take money out when I need it,” that may work for a while. However, it is not the same as having a written retirement-income plan.
You spent decades learning how to accumulate assets. Retirement asks you to solve a different problem: how to turn those assets into dependable income without losing sight of the years still ahead.
2. One Financial Decision Is Beginning to Affect Several Others
Retirement planning would be easier if every decision could be made on its own. Unfortunately, that is rarely how it works.
Suppose you need $80,000 from your savings this year. You could withdraw the full amount from a traditional IRA. The money is there, so the problem appears to be solved.
But what will that withdrawal do to your taxable income? Could it affect how much of your Social Security is taxable? Could it increase your Medicare premiums in a future year? Would using money from another account create a different result?
Now consider Roth conversions. The question is not simply, “Should I convert part of my IRA to a Roth?” You also need to ask how much to convert, when to do it, what tax bracket the conversion could place you in, where you will find the money to pay the taxes, and how it fits with your future required minimum distributions.
The same is true of Social Security. You can compare the monthly benefit available at 62, full retirement age, and 70. But the largest number on the page is not automatically the right answer. The decision also depends on your income needs, other assets, health, life expectancy, marital situation, and broader retirement plan.
Most retirement decisions involve trade-offs. A choice that looks perfectly reasonable by itself may be less attractive once you see how it affects everything else.
If you are reaching the point where every decision seems to create three more questions, you may benefit from having someone help you look at the complete picture and provide guidance in the right direction.
3. You Know What You Should Do, but You Do Not Know What to Do First
Some people assume they need a financial advisor because they do not know enough about money. That is not always the case.
Many people who seek financial guidance are intelligent, financially literate, and well informed. They understand the importance of diversification. They know what Roth conversions and required minimum distributions are. They have read about Social Security, Medicare, tax planning, and sequence-of-returns risk.
They are not lacking information. They are struggling to put the information in order.
The internet has made it possible to learn about almost any financial topic. It has also made it possible to find ten confident people giving ten different answers to the same question.
One article tells you to delay Social Security. Another tells you to claim early and invest the money. One person says you should enter retirement without a mortgage. Someone else says paying it off is a mistake. Before long, you have collected plenty of advice but feel less certain about what to do.
That is paralysis by analysis.
The value of an advisor may not be providing facts you could never find on your own. It may be helping you determine which facts matter to your situation.
What needs your attention now? What can wait? Which strategies fit your goals? Which ones sound interesting but solve a problem you do not actually have?
Sometimes what you need is not more information. You need a clear first step, followed by a second and a third.
4. You Are Not Sure How You Will React When the Market Gets Uncomfortable
Almost everyone feels like a disciplined, long-term investor when the market is rising. The real test comes when it falls.
Imagine that you have been retired for two years. You no longer receive a paycheck, and you rely on your portfolio for part of your income. Then the market drops 20%. Every headline warns of a possible recession, further losses, or prolonged uncertainty. That portfolio no longer feels like a collection of investments. Instead, it feels like your mortgage payment, grocery budget, travel plans, and ability to help your children or grandchildren.
You may understand that markets have recovered from past downturns. That knowledge does not necessarily make it easy to watch your savings decline while withdrawing money from the account.
This is why a plan for market volatility should be created before the market turns ugly.
Where will your income come from during a downturn? How much cash will you maintain? Which investments could be sold, and which ones should be left alone? What circumstances would actually justify changing the plan?
A financial advisor cannot predict the next downturn. A good one should not dismiss your concerns by simply telling you not to worry, either. Markets do decline, and losses are uncomfortable. The advisor’s role is to help you build guardrails before emotions take over. The goal is to reduce the chance that fear pushes you into making a permanent decision in response to a temporary market downturn.
If you know the plan but are unsure whether you could follow it when your money is on the line, an objective voice may be more valuable than you realize.
5. You Want Someone Who Is Willing to Challenge You
Sometimes you need a second opinion, not because you have done something wrong, but because it is difficult to evaluate your own decisions without some form of bias.
Perhaps you have followed the same investment strategy for 20 years. It worked well while you were earning a paycheck and accumulating money. Now you are retiring, and changing a successful strategy feels unnecessary. But what worked during accumulation may not be the best approach for producing retirement income.
You may own a stock that has performed well for decades and feel reluctant to sell any of it. It may represent a former employer, an early investment success, or a decision that helped build your wealth. That emotional connection is understandable, but it can also make concentration risk harder to see.
You might have three retirement accounts and assume you are diversified because you receive three separate statements. A closer look could reveal that all three accounts own many of the same companies.
An objective advisor can look beneath the surface and ask questions you may not think to ask yourself.
That does not mean you need someone who automatically disagrees with you. It means you need someone who is willing to say, “I understand why you want to do that, but here is what concerns me.”
If an advisor agrees with every idea simply to keep you happy, that may not be much of an advisory relationship. Honest guidance sometimes includes hearing something you did not expect, or did not particularly want, to hear.
What Should a Financial Advisor Actually Do?
A financial advisor’s value should extend beyond choosing investments. Investment management matters, but it is only one piece of a much larger picture.
A good advisor should help with four broader areas:
Planning: What are you trying to accomplish? When do you want to retire? How much income will you need? What risks could prevent the plan from working?
Coordination: How do your investments, taxes, Social Security, Medicare, insurance, income strategy, and estate plan affect one another?
Behavioral guardrails: What will you do when markets fall, plans change, or an unexpected event challenges your strategy?
Accountability: What did you agree to do, what still needs to be completed, and is the plan continuing to move in the right direction?
Investment management is important, but it’s only one piece of the puzzle. If you’re choosing your professional investment advice simply on performance numbers, you will almost consistently be disappointed. An advisor should not promise to outperform the market every year. No one can consistently make that promise, and anyone who does should make you nervous.
The real value should be found in the plan around the portfolio.
The One Sign You May Not Need an Advisor
You may not need a financial advisor if you have the knowledge, time, discipline, interest, and emotional temperament to manage your financial life, and you actually enjoy doing it.
That means you understand more than how to select investments. You have considered how your savings will produce income, how taxes may affect your withdrawals, when to claim Social Security, how healthcare fits into the plan, and what you will do during a market downturn.
You regularly review your beneficiaries and estate documents. You stress-test your strategy. You stay informed as laws and circumstances change. If you are married, your spouse understands the plan or has a clear roadmap to follow if something happens to you.
Some people genuinely enjoy this work. They enjoy researching investments, running projections, studying tax rules, and making adjustments. If that describes you, that is great. You may be comfortable continuing on your own.
But there is an important difference between “I can do this myself” and “I do not want to pay someone.” Despite what you might think, those two statements do not necessarily mean the same thing.
Maybe you have reviewed the potential cost and determined that an advisor would not provide enough value. That is a reasonable conclusion. But if you are avoiding help because you are embarrassed to admit that you do not understand something, or because you believe asking for help means you have failed, that is different.
There is no prize for handling every part of retirement by yourself.
The question is not whether you are capable. It is whether managing everything alone is the best use of your time and whether you feel confident that nothing important is being overlooked.
The Bottom Line
The overarching question isn’t: “Should everyone hire a financial advisor?”
The answer is no.
The right question to ask is this: “Has my financial life become complicated enough that professional guidance would add value and direction to where I want to be?”
Deciding that you want professional guidance does not mean you should hire the first person who calls themselves a financial advisor.
The industry includes financial planners, investment advisors, brokers, insurance professionals, wealth managers, and professionals who provide some combination of those services. Titles alone may not tell you exactly what someone does or how that person is compensated.
Do not be afraid to ask direct questions:
- Are you a fiduciary, and when are you acting in that capacity?
- How are you paid?
- Will you receive commissions or other compensation?
- What services are included in your fee?
- Do you specialize in working with retirees?
- Will you help with income and tax planning, or only manage investments?
- How often will we review the plan?
- How can I research your professional and regulatory history?
A fee-only professional is generally compensated by clients for advice and services. A fee-based professional may receive fees as well as commissions or other sales-related compensation. Those terms sound similar, which is why it is important to ask for a straightforward explanation of every potential cost.
There is nothing inherently wrong with paying a professional. You pay attorneys, CPAs, physicians, mechanics, and other professionals for their time and experience.
Don’t ask yourself, “What does this cost?” Instead, ask, “What am I receiving for what I am paying?”
Is It Time for a Second Set of Eyes?
Hiring a financial advisor does not guarantee that every decision will be perfect.
Still, retirement can turn a relatively straightforward saving and investing process into a series of connected decisions. You are no longer only trying to grow your money. You are asking that money to provide income, survive market declines, account for taxes and healthcare, support a spouse, and possibly leave something behind for the people or causes you care about.
That is a lot to coordinate.
Before deciding whether you need help, ask yourself:
- Do I have a retirement-income plan, or do I simply have money saved?
- Do I understand how my taxes, Social Security, Medicare, investments, and withdrawals affect one another?
- Do I know what steps I need to take, and in what order?
- Do I have a plan for the next serious market downturn?
- Would an objective professional help me make better decisions or feel more confident about the ones I am already making?
If several of those questions give you pause, it may be worth starting a conversation.
You do not have to hand over every decision. You do not have to commit to a long-term relationship after one meeting. You can simply allow someone to look at the plan, ask a few difficult questions, and help you determine whether anything is missing.
Sometimes the most valuable result is not being told that everything needs to change. It is gaining confidence that the pieces of your financial life are finally working together.
For more on this topic, watch Episode 88 of Coasting in Retirement: “5 Signs You Need a Financial Advisor (And 1 That You Don’t).”
Ready to Start a Conversation?
You do not have to figure out every part of retirement on your own. Gulf Coast Financial Advisors is here to help you consider what comes next.
Call 251-327-2124, or click this link to schedule a meeting.
Meeting options include:
- 15-minute introductory phone calls
- 30-minute Zoom meetings
- In-person meetings in Fairhope, Orange Beach, or Mobile
No pressure. No obligation. Just a conversation about preparing for what comes next.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.