Do you need a financial advisor? If you’re a regular listener to AgingOptions or a reader of the Blog, we imagine you know how we would answer that question. But in spite of the advice from estate planning experts, reports such as this recent article from Investopedia suggest that only around 40 percent of Americans rely on the services of a financial advisor or financial planner. Even among those 65 and older, the usage rate barely hovers at around 50 percent. 

There are, no doubt, plenty of reasons why those figures may be true. Some may feel that their estate is just too small. Others prefer to do it themselves, using tools readily available online. But today we’re focusing on specific reasons why the six Americans in ten who don’t have a financial advisor need to think twice. What might cause these hold-outs to reconsider? 

This recent Wall Street Journal article offers one approach – a simple list of four questions you can ask yourself to help decide whether it’s time to call in a financial professional. Not to give away the punch line, but the article (written by Wall Street Journal reporter Debbie Carlson) makes this relevant point: “Life milestones like marriage or retirement can create financial complexities that even do-it-yourself investors need assistance on.”   

So, do you need a financial advisor? Let’s take a deeper look. 

Online Tools Make This an Easy Time to be a DIY Investor 

Carlson begins with the concession that there has never been an easier time to be a “do-it-yourself investor.” There are so many tools at our disposal these days: financial calculators, apps for budgeting and investing, and even “robo advisors.” 

“But,” she writes, “sometimes it may pay to hire somebody to help. Big life events, for instance, may change your financial picture in a way that technology can’t tackle.” 

Certain milestones, she says, like marriage or the birth of a child, can be a wise time to meet with a professional. These represent seasons when your money or tax situation can change, but any shift in the market—like inflation or volatility—can be a good time to ask for help in crafting a plan.  

Quality Advice Can Be Pricey – but Benefits Make It Worthwhile 

Just like with anything, you get what you pay for. Carlson writes, “The advice doesn’t come cheap—a traditional fee equal to 1 percent of your managed assets means you’re paying $5,000 a year on a $500,000 portfolio, though there are an increasing number of lower-fee alternatives.” 

She adds, “Still, whether you’re new to investing or are a longtime saver, there may be times when you could benefit from a financial advisor, as a sounding board for your own plans if not outright guidance.” 

Here are four questions that Carlson suggests asking to help you decide whether or not to bring in the professionals.  

Question 1: “Am I On Track With My Retirement Savings?” 

Simply put: if the answer is no, and you don’t know how to get yourself on track, then Carlson suggests that calling an advisor might be the wisest move. “A professional planner can look holistically at your contributions, asset allocation and spending and map out a good long-term strategy and calculate what annualized return you may need over time so you take an appropriate amount of risk,” she explains.  

In this scenario, a financial advisor can also help survey any “financial-wellness offerings” made available through your workplace that you can add to your arsenal to better meet your goals.  

Workplace Retirement Plans May Not Be Enough 

Marni Gibson, president of the North American Securities Administrators Association, warns that simply taking advantage of workplace retirement plans—like a 401(k) with matching employer contributions, for example—might not be enough to reach a long-term savings goal as big as retirement.  

Carlson writes, “In addition to looking at your personal contributions and spending, a financial advisor may also look at the impact of other investments on your total portfolio, such as company stock. Many people have too much of their employer’s stock in their portfolio, and a financial advisor may suggest a different savings and investment strategy to bolster long-term growth while cutting risk.” 

Gibson agrees with this approach. “Maybe there are other opportunities within your workplace plan that you’re just not aware of because you have done the same thing for so long and it’s worked,” she says.  

Question 2: “Am I Truly Ready to Retire?” 

Saving money isn’t always easy, Carlson tells us, but it’s straightforward: “[Y]ou have years to accumulate wealth, and small mistakes made along the way won’t necessarily wreck your chances of long-term success,” she writes. “However, when you get close to retirement, there are complicated questions that arise and making mistakes can wreck your financial outlook.” 

This is where a financial advisor can be especially helpful. They can work with pre-retirees to set them up properly for the future: mapping out spending, claiming Social Security at the most optimal time, deciding how much to withdraw in both up and down markets, determining how to handle assets, and helping with everything to do with relevant taxes.  

“This Isn’t Back-of-the-Envelope Time” 

Christine Benz is the director of personal finance and retirement planning for investment-research company Morningstar, and she says that one area where DIY investors often struggle is with portfolio-drawdown strategies. While popular guidelines exist, such as withdrawing 4 percent of your portfolio annually, she says that this common notion isn’t a real plan.  

“This is not back-of-the-envelope time,” Benz says. “You really need someone who is going to put some precision around how much you can reasonably spend, and ideally your retirement spending would change a little bit throughout your retirement time horizon.”  

Managing Required Minimum Distributions Takes Knowledge 

Another task that a financial advisor can help you with is planning a strategy on how to manage the required minimum distributions (RMDs) from traditional individual 401(k) or other retirement accounts, as well as mitigating tax burdens, says Gerri Walsh, senior vice president of investor education at the Financial Industry Regulatory Authority.  

This is because the mandatory withdrawals are taxable; depending on your other income, you might accidentally push yourself into a higher tax bracket if you’re not careful.  

“Thinking ahead to map that out is best done in advance, before the first actual withdrawal,” Walsh says. 

Question 3: “As I Age, Will I Still be Able to Manage My Investments?” 

Walsh says that those who have both a high level of investment knowledge and time to research and manage their investments may not need a financial advisor. At least…not initially. But as investing becomes more complex and our ability to keep up falters, it may be worth bringing in someone to help.  

She asks, “If you are thinking of more complex strategies, [do you know] the tax implications, and do you have a strong enough grounding and understanding of long-term capital gains, short-term capital gains?” 

Age, cognitive decline, or an increasingly hectic schedule can all be signs that it’s time to hire a professional to assist you and to act as a “fail-safe” in case you ever require backup.  

Benz uses herself as an example: she and her husband have given their advisor all of the relevant documents and plans so that the professional can temporarily step in to handle finances whenever it’s needed.  

Question 4: “Am I Ready to Listen to Advice and Change My Ways?” 

Sonya Lutter, a financial psychologist and founder of the Institute for Systemic Financial Professionals, says that it’s vital to ask yourself a two-part question before seeking any financial advice: How important is it to change your behavior, and how confident are you that you will change? 

Rate your answers on a scale of one to ten, she says, with ten being the most important, and this will determine how much benefit you’re likely to get from the advice you ask for.  

Concluding the article, she says, “Unless the answer is five or higher in importance…you’re wasting your time and money” seeking out a financial advisor.  

Rajiv Nagaich – Your Retirement Planning Coach and Guide 

The long-awaited book by Rajiv Nagaich, called Your Retirement: Dream or Disaster, has been released and is now available to the public. Retirement: Dream or Disaster joins Rajiv’s ground-breaking DVD series and workbook, Master Your Future, as a powerful planning tool in your retirement toolbox. As a friend of AgingOptions, we know you’ll want to get your copy and spread the word.  

You’ve heard Rajiv say it repeatedly: 70 percent of retirement plans will fail. If you know someone whose retirement turned into a nightmare when they were forced into a nursing home, went broke paying for care, or became a burden to their families – and you want to make sure it doesn’t happen to you – then this book is must-read. 

Through stories, examples, and personal insights, Rajiv takes us along on his journey of expanding awareness about a problem that few are willing to talk about, yet it’s one that results in millions of Americans sleepwalking their way into their worst nightmares about aging. Rajiv lays bare the shortcomings of traditional retirement planning advice, exposes the biases many professionals have about what is best for older adults, and much more. 

Rajiv then offers a solution: LifePlanning, his groundbreaking approach to retirement planning. Rajiv explains the essential planning steps and, most importantly, how to develop the framework for these elements to work in concert toward your most deeply held retirement goals.  

Your retirement can be the exciting and fulfilling life you’ve always wanted it to be. Start by reading and sharing Rajiv’s important message. And remember, Age On, everyone! 

(originally reported at www.wsj.com)