Derek Burnett
Derek Burnett is a Contributing Writer at Bottom Line Personal, where he writes frequently on health and wellness. He is also a contributing editor with Reader’s Digest magazine.
There’s no question that having a financial advisor in your corner during and after retirement is a great idea. An advisor can guide you on retirement-plan withdrawals, tax considerations, estate planning and much more. But there’s plenty that a financial advisor can do for you long before retirement. In fact, to put off the hiring of a financial advisor until retirement could be a costly mistake. Here’s why.
Getting expert help with your finances early in your adult life is one of the smartest decisions you can make. While there’s certainly plenty of life after retirement, in many ways that milestone represents the culmination of a life’s worth of saving and planning. In that sense, hiring an advisor only after retirement is a bit like an athlete hiring a coach only after crossing the finish line of the biggest race of his life.
During your early years, a financial advisor can help you establish a plan for the most successful retirement possible. And “successful” doesn’t just mean “richest” but also “happiest” and “most fulfilling.” A good advisor will help you give careful thought both to the kind of life you’d like to live in retirement as well as the life you want to live along the way. They’ll guide you toward the financial choices most conducive to your own personal goals and will periodically review those goals as life events come at you…children, career changes, marriages, divorces, deaths, inheritances, elder care, health challenges, college expenses and so much more. During your 20s, you can’t predict what your priorities will be in your 50s, but if you have a trusted advisor all along the way, you’ll be able to adjust your financial plans and goal-setting. If you’re just winging it until retirement, you’re bound to encounter new situations for which you lack the expertise to make the best decisions on your own. These could derail your plans, leaving your retirement situation in doubt.
According to Bankrate, people who hired a financial advisor earned, on average, 1.8 times as much on their investments as those who opted to go it alone. Unless you’re a professional investor yourself, your advisor will know more than you about such portfolio-management concerns as rebalancing and diversification. And multiple studies have shown that deferring to an expert has a good return on investment—in other words, that the money you pay out for guidance more than comes back to you in the form of higher returns.
While it’s fine for your financial goals to shift as life progresses, it’s important to stick to your plan however it exists in the moment and not to be swayed by fear or euphoria. A good financial advisor has been through many market cycles and can help you temper the reactive emotions that might tempt you to deviate from your plan. In a way, a financial advisor can serve as an accountability partner, someone looking over your shoulder to make sure you’re not making wild financial decisions that contradict or jeopardize your own stated goals for the future.
All throughout adult life, there are tax strategies that could make a difference not just to your post-retirement lifestyle but to how much money is in your hands during the decades of wealth accumulation that lead up to retirement. A good advisor will be aware of opportunities that you might miss, such as Health Savings Accounts or other tax-advantaged vehicles. And they can help you optimize your tax deductions and credits to keep more of your money working for you and not for the government all throughout your earning years.
A good financial advisor does more than offer advice or make decisions on your behalf. The best advisors are educators, encouraging you to ask questions so that you can learn as much as possible about all the different facets of personal finance. Our financial lives only become more complicated as life goes on, so if you’ve got a patient teacher along the way, you’ll be better and better equipped with the knowledge you need to make good decisions as things get more complex. Winging it until retirement and then hiring an advisor could leave you vulnerable to bad counsel or simply not well enough informed to make the right moves when the stakes are high.
According to a Fidelity study, 90% of investors who use advisors say they’re confident about retirement. And research from Northwestern Mutual found that 66% of respondents who worked with financial advisors felt financially secure, compared to only 30% who were going it alone.
While it’s important to be proactive and mindful of your finances, there’s a lot to be said for offloading to an expert most of your worry about money. Rather than constantly feeling anxious and living in a heightened state of vigilance, there’s great peace of mind in knowing that you’ve collaborated with a trusted advisor on a solid plan and that all you need to do is earn money and stick to the plan.
