Not being able to sleep at night when it comes to your finances usually means one or both of two things.
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We came across the below question on Reddit recently, and it felt similar to questions we get often enough from readers of this column: someone nearing retirement, seemingly in decent financial shape, but just not sure what to do and questioning whether to hire a financial adviser (this tool can match with an adviser who might meet your needs). Here’s the question, and we had a number of pros weigh in on the answer.
Question: I just turned 58 and I have about $620k in my 401k. I had more, much more, but the market I guess is not the best. I plan to work until age 65 or 67. I’ll be able to collect the max social security when I finally do start collecting it. I have a house that is worth about $1.7 million in Huntington Beach, CA and I still owe about $340k on it (my mom is going to pass away from cancer in the next year, sadly, but I’ll use my inheritance to pay off my house, so that’ll be nice). I also have a small pension that I got from an employer I worked for in 1998, it is only about $350.00 a month. I have never had anyone review my 401(k) funds, I do use a large brokerage firm and I pay a fee to have someone oversee my account. I am just not sure that this is who should be reviewing it. Maybe I need an independent adviser to review my measly portfolio and especially look at how I am investing in my 401k. I couldn’t sleep last night, overthinking my financial health.
Answer: It can certainly be a good idea to hire a pro to go over your situation and advise you the best way to move forward, experts say. Even if you’re doing all the right things, the peace of mind may be worth it, though of course, you’ll need to consider the cost (more on that later) and not everyone needs professional guidance.
Have an issue with your financial adviser or looking to hire a new one? Email questions or concerns to picks@marketwatch.com.
Given that you’re 58, “you are at an optimal age to sit down with a fee-only fiduciary planner and have them review your financial situation and make recommendations for your lead up to retirement,” says certified financial planner James Daniel at The Advisory Firm. Financial planning (evaluating your wealth and building a comprehensive plan for the future of your money) may be helpful as well, given you’re due to receive an inheritance, are still carrying debt and may be a little behind on your retirement savings. “Portfolio management is just one piece, don’t forget the others,” says certified financial planner Matt Bacon at Carmichael Hill & Associates.
Certified financial planner Josh Trubow at Sensible Financial says his advice is to engage with a pro in doing a comprehensive financial plan. “Looking at lifetime spending and other goals, thinking through retirement age, Social Security filing strategy, income distribution strategies, Medicare, estate planning and more. From what you’ve provided, it sounds like you’d benefit from having an independent adviser review everything and help provide context, recommendations and peace of mind that what you’re doing or planning to do will work,” says Trubow.
What type of financial adviser should you look for?
In your case, experts recommend pursuing a fee-only adviser — a financial professional who only receives payment directly from the client, versus being paid a commission when selling specific financial products — as this helps eliminate any potential for conflict.
“A fee-only financial planner will help alleviate many of your financial concerns by having an objective third party review your strategy and offer insights. A financial plan would go through your retirement strategy, investment portfolio, debt reduction and various other areas to make sure you are tracking well and help you understand where you need to be each year as you work toward retirement,” says certified financial planner James Daniel at The Advisory Firm.
A CFP might be a good bet, as they’ve gone through extensive training and professional experience. They can review your portfolio, ensure that you’re on the correct financial track and verify whether paying off your mortgage is the most suitable option, says certified financial planner Alonso Rodriguez Segarra at Advise Financial.
Furthermore, Bri Conn, investment adviser representative at Childfree Wealth says she prefers advice-only, fee-only certified financial planners. “Advice-only means they only provide advice and will not take over your investment accounts, however they can tell you what to buy and sell while fee-only means they are only paid by you and receive no commissions or referral fees,” says Conn. Indeed, not being able to sleep at night when it comes to your finances usually means one or both of the following things: You don’t understand what you’re invested in or you took on too much risk. “In this case, it may be a bit of both. Having a financial professional walk through this with you is a good start,” says Conn.
Pricing for financial planners varies depending on factors like where you live and the type of service you’re looking to engage in, but the typical assets under management (AUM) fee is about 1% of AUM while hourly advisers charge between $150 and $450 and flat fee advisers cost roughly $2,500 to $10,000 depending on the scope of work. To find qualified advisers, visit the CFP Board’s Let’s Make a Plan site, the National Association of Personal Financial Advisors (NAPFA) Find an Adviser page, or you can use this tool to help match you with an adviser who might meet your needs.
Other options
That said, there are other ways to get a better understanding of your position. “Schwab, Vanguard, Fidelity and almost all other major brokerages have advisory services that do just this kind of thing. They tend to use out-of-the-box model portfolios in many cases, so customizations tailored to your may be limited. However, these services are often times cheaper than independent advisers and can at least get you in the ballpark in terms of what you should be doing with your portfolio this close to retirement and why,” says certified financial planner Matt Bacon at Carmichael Hill & Associates.
Though they offer less personal service, robo advisers can be a cost effective way to invest money using an algorithm for a fraction of the price of a human adviser. That said, robo advisers are best used for simple, traditional types of investing as they lack the ability to handle unexpected or non-traditional financial situations. If you don’t require comprehensive planning and you’re just looking for generic assistance with investing and portfolio rebalancing, a robo adviser can do the trick at a lower cost and with lower capital.
Have an issue with your financial adviser or looking to hire a new one? Email questions or concerns to picks@marketwatch.com.
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