You've been smart and diligent about saving for retirement, and when the time comes to start using that money, you want to continue to make wise financial choices. If you're recently or soon to be retired, you may be thinking about hiring a retirement financial advisor to guide you.
As you weigh your options and consider taking this step, here are some things you'll want to know.
Types of Retirement Financial Advisors
Retirement financial advisors are a subset of the broader category of personal finance advisors, who come in many stripes. Their job titles may or may not include the word retirement, but the most desirable will have significant experience in retirement planning and advising.
A retirement financial advisor may have one or several certifications. The most common is the Certified Financial Planner (CFP) designation, but there also are retirement-specific credentials, such as Chartered Retirement Plans Specialist (CRPS), Retirement Income Certified Professional (RICP) and Chartered Retirement Planning Counselor (CRPC).
How (and How Much) Retirement Financial Advisors Get Paid
Like all financial advisors, those who specialize in retirement get paid one of three ways:
Fee-only advisors are compensated solely through an annual, hourly or flat fee.
Commission-based advisors are paid through commissions on the investments they sell to clients.
Fee-based advisors receive both a fee from the client and a commission on the investments they sell.
The most common method fee-only advisors use is charging a flat rate based on a percentage of the assets under management (AUM), with 1% being the average rate, according to U.S. News & World Report. Many advisors use a sliding scale, charging higher rates for small portfolios and lower rates for big ones.
How To Decide If You Need a Financial Advisor
Managing your money in retirement can mean engaging with a wide range of financial subjects, from budgeting for everyday living expenses to investing, tax planning and estate planning. If you'd like the perspective and guidance of a professional to help you navigate these matters, then accessing the expertise of a financial advisor might be a wise move.
A retirement financial advisor can help you set or revise your financial goals, allocate your investments, assess your insurance needs, understand the tax implications of your financial decisions, and determine whether you need additional help from experts like estate planners, accountants or attorneys. If you have limited experience in these areas, or you simply don't want to handle them all yourself, hiring a retirement financial advisor can be a great solution.
On the other hand, maybe you feel confident enough in your financial planning savvy to take a DIY approach. This might be the case if you're dealing with a relatively modest amount of assets and a simple estate. You might decide to forgo hiring a financial advisor and instead take advantage of tools like asset allocation calculators or budgeting resources to make sure your numbers are on track to meet your goals.
How To Choose a Financial Advisor
Getting recommendations from family members, friends and current or former work colleagues can be a good starting point when you're searching for a financial advisor. You can also search the online databases of reputable organizations to find a potential match or vet an advisor you're already considering.
To find a certified financial planner in your area, you can search the CFP Board's database at LetsMakeAPlan.org. The National Association of Personal Financial Advisors has a database of fee-only planners as well.
To check whether a financial advisor has been the subject of any customer complaints or regulatory violations, you can conduct a search on BrokerCheck, from the Financial Industry Regulatory Authority (FINRA), or the Investment Adviser Public Disclosure website from the U.S. Securities and Exchange Commission.
When you've found a few good matches with advisors who have solid track records, you can start interviewing them for the job. Be sure to ask them the following questions during your interviews:
What qualifications, credentials and experience do you have in general financial advising and in working with retirees?
What kinds of services do you offer?
Are you a fiduciary — an advisor who will always place my best interests before your own in recommending investments and products?
How would you describe your general approach to financial planning?
The more you can learn at this stage, the more likely you are to find a suitable advisor who can help you make the most of your retirement savings.