Top Questions You Should Ask Your Financial Advisor | INVESTEDMOM
Retirement planning can seem intimidating if you do not have proper knowledge or guidance. Turning to a financial advisor to discuss your retirement plan can help you have a brighter financial future.
Only about 30% of schools offer access to courses in financial literacy. Though this number is undoubtedly a leap from previous years, many retirees need more to provide retirement planning peace of mind. Thankfully, financial advisors are investment professionals in their field who we can turn to for help and guidance for a happy, fulfilling retirement.
It's important to ask a financial advisor questions about your retirement plan, so you can better understand your financial goals. Below are the top 10 questions to ask a financial advisor about retirement.
Knowing the right questions to ask a financial advisor about retirement can help you feel more comfortable with retirement planning.
Both you and your financial advisor must know your personal goals for retirement. When your advisor understands your financial picture, they can work entirely in your best interests.
As you discuss your financial history and plans with your advisor, you can work together to discover your right retirement path.
Ensure your financial planner is trusted and accredited before making your financial decisions.
When choosing a financial advisor, you must find someone you trust to help you plan your wealth management throughout your retirement years.
If you want a working relationship with your financial advisor, asking questions before choosing one can help ensure you find the right financial advisor.
#1 Are you a fiduciary?
Fiduciaries are financial planners who are legally obligated to work in the best interest of their clients. When working with a fiduciary, you can rest easy knowing you are working with someone who will disclose truthful information about your retirement planning and goals.
Fiduciaries can come in many ways, such as money managers, accountants, insurance agents, executors, board members, bankers, and financial professionals.
You can ask them to sign a fiduciary oath for further clarification. The Committee for the Fiduciary Standard created a pledge stating that signees will follow fiduciary guidelines and be held responsible for advising their clients. In doing so, they will act with their best judgment, skills, and professional work ethic.
A financial advisor that is also a fiduciary will always have your best interests first. A fiduciary will make you feel more secure as they advise you on how to handle your money best going into and throughout retirement.
#2 What qualifications do you have as a financial advisor?
No two financial professionals are the same. You will likely want to find an advisor with a history in retirement planning. A retirement financial advisor will have experience in helping you reach a comfortable retirement.
Choosing a certified financial planner (CFP) will be most beneficial to you, as they will not judge you and are the most qualified advisors available out there. It makes sense to work with a financial professional who has the most qualifications under their belt.
Just because someone may say they are a certified financial planner does not mean they are. To become a CFP, one must have 6,000 hours of professional history relating to financial planning. After completing the hours and an exam, advisors receive a certificate stating their official qualifications.
Another high-earning credential an advisor can have that may benefit you is a Retirement Income Certified Professional or RICP. These professionals have retirement-specific skills and assets to help guide you through retirement.
If you need help finding an advisor with proper qualifications, you can use websites like "Your Advisor with Designation Check". This website will also allow you to check whether a professional's qualification claims are valid.
#3 Can I speak to any of your current or former clients?
Their response to this simple question can display their confidence level in their work. If they seem hesitant or unwilling to allow this, they are untrustworthy in guiding you through your retirement process.
If you decide to speak to an advisor's other clients, ensure they are happy with their financial decisions, the guidance they have received, and their financial situation.
#4 When should I retire?
Did you know that there is no set age for retirement? You can retire whenever you have the money to do so! Unfortunately, about 40% of people retire sooner than anticipated due to health complications from themselves, a loved one, or changes in their workforce. On average, people retire at the median age of 62, although most retirees thought they would work until they were 65.
Increasing your working years can make for drastic differences if you want to improve your chances of retirement success. You can enhance your social security and pension benefits when you delay retirement. To calculate these benefits, the government looks at the 35 years of work you earned the most income. Your best years of work could be in your final years after climbing the work ladder and gaining seniority in your workplace.
Additionally, increasing your working years will decrease the years you need to fund for your retirement. You can also save money and build wealth towards retirement during this time.
#5 How much money do I need to retire?
The amount of money you need to retire will depend on several factors. A few possibilities are your retirement age, how long you think you will live, current income, monthly budget, and the retirement income you anticipate, such as Social Security Income and pension income
Often during retirement, retirees will find a hobby or an "encore career" that allows them to earn some extra income. This can help increase your cash flow when money may be tight.
Consider the amount of money and other assets needed annually to sustain your current lifestyle. The average number of retirement years is 25, so multiply that number by 25 years. This number is the amount of money needed for you to retire.
Your financial advisor should be upfront with you concerning all aspects, including whether or not your current monthly income will allow you to retire when you want to. Reviewing your retirement savings and income sources as you and your financial advisor look at your financial future during retirement is essential.
#6 When should I claim my Social Security?
The earlier you claim your social security benefit, the more the benefit received is reduced. This reduction can be damaging later if a surviving spouse gets that reduced amount. You can claim social security as early as 62, but this will result in your benefit being 25% less than it would be if you had waited until full retirement age.
It's best to wait until full retirement age. If you delay taking social security benefits until 70, you can increase your help to 8% annually. However, there is no benefit to waiting to begin social security benefits after age 70.
Unfortunately, if you have any medical complications that may shorten your lifespan, you may want to consider claiming social security sooner rather than later.
Your financial planner should be able to help make a recommendation suited to your unique situation.
#7 How will I be able to use my retirement savings?
Many retirees will move their retirement savings into a single IRA account. One account can make seeing all your money in one convenient location more accessible. You can then withdraw from this retirement income in several ways.
You can withdraw a "lump sum" if a more considerable expense arises. A lump sum is one large, single payment instead of multiple smaller ones.
Otherwise, you can schedule monthly wires or periodic transfers into your checking account. Transfers like these will give you a steady stream of money throughout your retirement years.
How you receive your retirement income is dependent entirely upon your personal situation. You can sell any investments to help fund your withdrawal. Always remember that there may be fees or penalties for withdrawing depending on where you decide to invest. Additionally, be aware that taking from retirement accounts can result in taxable income.
Always ask a financial or tax advisor about potential withdrawal consequences when using your retirement savings.
#8 What kind of investment advice do you have for my retirement income?
Planning appropriately in your early years for a successful retirement would be best for a successful retirement.
Investment strategies such as moving investments and other assets from low-yielding accounts into higher-yielding accounts can help improve your overall retirement income savings.
But how do you know which investment opportunities are right for you and which ones are too good to be true? A financial professional should be able to guide you through making smart investment choices.
To preserve your money during retirement, you should spread your investment portfolio across a diversified mix of low-cost mutual funds. These are investments that have low expense ratios or annual fees in management.
#9 If I received a pension, how should I take it?
Though pension plans are rare, they do have a rather significant impact on retirement income.
A pension plan is a retirement plan from work that provides employee payments throughout their retirement years. A retiree's pension income directly relates to the employee's salary and the years they worked for their employer. If you wish to receive pension benefits throughout your retirement years, you should work with a company that offers these plans.
When deciding how to receive this money, you should ask yourself whether a steady income stream or a more considerable sump sum would benefit you more.
Again, you should anticipate your life length and what would be more financially beneficial to you.
#10 How are we going to reach my goals?
A financial planner should always follow the SMART goals guidelines when creating goals. Financial goals should be:
Specific
Measurable
Achievable
Relevant
Time-Bound
Financial and investment professionals should always be transparent about what they will do if their planned financial goals still need to be met.
A financial planner should also help you in achieving non-financial goals. Working with an advisor who cares just as much about your personal situation as they do about your financial situation is critical.
Discussing goals like these will help your financial advisor gain better insight into the type of person you are and how they can help you accomplish your financial goals.
Asking questions of financial advisors can help in better understanding the retirement process.
There is no doubt that retirement planning can seem daunting. Understanding your investments, personal finance, and cash flow can be a challenge without the help of a qualified retirement financial advisor.
At Invested Mom, we understand knowing how to manage money and prepare for retirement can be intimidating. Sign up today for Invested Mom's new course to learn all there is to know about the retirement process and finding the right financial advisor for you.
Meet the Author:
Inge was born and raised in Cape Town, South Africa, and moved to Canada in 2010 looking for a better life. She always had an entrepreneurial spirit and started her first side hustle when she was 9 years old – selling fudge at school during lunch breaks.
It wasn’t until much later that she realized that saving isn’t enough to get ahead. She was always very interested in real estate, but saving up for a down payment was grueling and slow, and the demands of life kept getting in the way.
She started investing in herself and upgrading her skills while learning how to invest. She quickly became debt free and compounded her money at a staggering rate.
It wasn’t until she became a coach that she realized how significant an impact she can make in people’s lives by sharing her journey, learnings, and processes.
So here she is, advocating for everyone who is invested and wants to build their wealth, especially the mommas!