Why Retirees Should at Least Consider a Financial Adviser

Some clients manage to do a great job accumulating wealth without assistance during their working years, but they should still consider a meeting with a financial adviser before jumping into retirement.

My question is about financial advisers. Specifically: Do I need one? I know that such help is important, but paying 1% of my assets annually, which appears to be the going rate, seems steep. My wife and I have adequate retirement savings, our mortgage is paid off, we have virtually no debt, and we are invested almost exclusively in index funds with low fees. Our estate-planning documents are in order, as well. So, what would I gain from working with a financial adviser?

I certainly have met and spoken with retirees who have the skills and time to manage their finances in later life. And yes, many advisers typically charge, annually, 1% of assets under management. If the value of your nest egg is, say, $1.5 million, then $15,000 goes to your adviser. (Check carefully if an adviser tells you: “My help is tax-deductible.” Some, but not all, adviser fees fall under that heading.)

That said, there are several reasons why most people approaching retirement or already retired should at least consider meeting and possibly working with a financial adviser.

Most important, a good adviser will keep you from doing something stupid with your money. And most people, even those who have, or think they have, a good handle on their finances, trip up at some point. That includes me

Several years ago, a close family member approached me about investing a sizable amount of money in a supposedly can’t-miss opportunity. Even though I was aware of the risks involved in lending money to family and friends (you tend to follow your heart rather than your head), I wrote the check. Well, the can’t-miss investment missed. And my wife and I paid the price. Very dumb.

And don’t assume that simply because you’re invested in index funds or other seemingly straightforward products you must know what you’re doing. Barry Kaplan, a certified financial planner and principal with Modera Wealth Management in Atlanta, recalls meeting a young lawyer who confidently explained that 75% of his nest egg was invested in an S&P 500 index fund and 25% in a Wilshire 5000 index fund. The latter, the lawyer said, represented the small-cap portion of his holdings.

The problem: The Wilshire 5000 is a total-market index, not a small-cap index. The lawyer assumed that one-quarter of his money was invested in small-cap stocks, when, in reality, the figure was closer to 5%.

“He didn’t understand that index investing, while simpler than traditional active investing, isn’t that simple,” Mr. Kaplan says. “You have to determine which indexes. What’s the overlap between the indexes? What are the gaps? And what about foreign [funds]? It’s even more complicated there.”

A good way to gauge your financial smarts: What did you do as markets were crashing in 2008 and 2009? Run for the hills? Sit tight? Tweak your investment strategy? Says William J. Bernstein, a neurologist, investment adviser and author: “You are not as good looking, as charming, or as good a driver as you think you are. The same goes for your investing abilities.”

Two additional reasons why retirees might benefit from working with an adviser are taxes and spouses. Many retirees have two or more different types of savings or sources of income: taxable accounts, tax-deferred accounts, Roth IRAs, pensions, Social Security, etc. Ensuring that your nest egg lasts as long as you do is the biggest financial challenge most of us face in retirement, and tapping various assets in the most tax-efficient way possible is crucial to that. Here, a good adviser can be invaluable.

As for spouses, most couples seem to have one person who handles and understands retirement finances. If that person dies suddenly, the surviving spouse could benefit from having an adviser in place.

Finally, if fees are the primary sticking point in deciding whether to work with an adviser, financial players old and new—Vanguard Group, Charles Schwab , SCHW +1.49% Betterment, and Wealthfront, among others—are now competing for your business with fees considerably lower than 1%. That fact isn’t lost on traditional advisers, some of whom are beginning to lower their prices, as well. In short: shop around.

“I am 72 years old and mostly retired but still have some income from consulting fees. Can I still contribute to my SEP IRA?”

Yes, you can. But you also must take required distributions from the same account.

A person who has earned income can continue contributing to a SEP IRA almost indefinitely. In 2017, those contributions can’t exceed the lesser of 25% of your compensation or $54,000.

But, unlike some company retirement plans, a SEP doesn’t have a “still working” exception, which allows a person to delay required minimum distributions. With a SEP, you must begin RMDs after reaching 70½.

Do you have any suggestions on where my wife and I can get Social Security benefit estimates? We were fortunate to retire in our mid to late 50s, and we will have no Social Security wages in the future. We are both 60 years old. I would like to estimate our benefits for age 62 and our full retirement age of approximately 66.

If you haven’t already, you should set up a “my Social Security” account with the Social Security Administration. Here, you will find “Your Social Security Statement,” which the agency used to mail to people each year, and a quick estimate of future benefits.

Then, depending on how much time you have and how much work you want to do, three calculators on the agency’s website—a Retirement Estimator, an Online Calculator and a Detailed Calculator—can help estimate what your benefits might be at various ages. Each tool asks you to provide different amounts of information, which, ideally, generate increasingly precise estimates.

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