Retirees Often Overlook These 7 Huge Advantages of Working with a Financial Advisor

While it’s not always the most popular idea on Reddit, working with a financial advisor can be one of the most intelligent decisions any retiree can make. Even if you are someone who doesn’t think you need to seek out the advice of others, advisors may look at things in a different and more impactful way. 

The hope is that a financial advisor will pay for itself with the hope that you are making far more than you are spending. Yes, paying a financial advisor 1% annually can be aggravating, but this can be offset by your earnings in working with someone best qualified to make smart financial decisions. 

Protect From Yourself

Arguably, the most important reason to look at hiring a financial advisor, and one that is often overlooked, is that this person can help protect you against yourself. Any time you manage your own finances, emotional decisions can be a significant factor, and these emotions can and will result in lost money if you don’t act rationally. In other words, they will act as a guardrail to bad decision making and not allow you to veer off the road. 

Your Success Is Their Success

While there is no question that the percentage any financial advisor takes is controversial, the reality is that the greater the money earned, the more likely a financial advisor is to earn more. This incentivizes them to boost your success by making smart financial choices to help you gain more. They will also ensure you can contact them as often as possible. Good financial advisors should also set up quarterly portfolio reviews to talk about what’s working, and what changes they want to make. 

Long-Term Care Needs

While we all hope to live as long as possible, the current estimate in America, according to the Administration on Aging, is that at least 70% of Americans who are 65 and over will require some type of long-term care. Americans spend approximately $475 billion on long-term care, which is why a financial advisor can help ensure that any plan you build creates a buffer to provide for long-term care if and when necessary. 

Planning Your Retirement

If you did a Google search for “how to plan for retirement”, the results will be massive in the sense there is an overwhelming amount of information about what you should be doing. However, if you work with a financial advisor, this individual will help build a personalized plan that gets you toward your goals. 

Instead of taking blanket advice that isn’t applicable for everyone, a personalized plan will incorporate your desires to build up a nest egg, fund 529 accounts for grandchildren, create a lasting financial legacy, and allow you to enjoy hobbies and vacations. 

To achieve all of this, a financial advisor will identify, in partnership with you, the best type of retirement account for your goals. The hope is that any plan created with a financial advisor can help hit on all possible phases of retirement, including anything medical where you might need to have a buffer of money available to pay for long-term care not covered by Medicare. 

Let’s say Ted and Martha are retiring at 67 with approximately $1.2 million in savings and plan to follow the 4% annual withdrawal rule. However, after talking with a financial advisor who looked at Ted’s pension, healthcare needs, and desire to travel, a personalized withdrawal strategy was created to front-load travel expenses while they still have good health. This would allow them to reduce their withdrawal amounts in their late 70s, which leaves more cash available for any healthcare costs down the road. 

Slash Your Tax Burden

Everyone knows that taxes are inevitable when working and retiring, but there are ways to slash your tax burden while retired. The truth is that most retirees, especially those trying to plan for themselves, are not aware of how much taxes will eat away at whatever savings number they think they have to live on after they have stopped working. 

A good financial advisor will talk to you about structuring any distributions you must make to minimize your tax liability. They might speak to you about tax-loss harvesting, or only making strategic withdrawals from tax-deferred accounts. 

Unfortunately, retiring doesn’t exempt you from taxes, and you need to know this is true if you have a pension, Roth, or 401(k) account. You also need someone who can help you understand that Roth accounts aren’t taxed in the same way defined-contribution accounts like a 401(k) account, which might be taxed like regular income. 

Take David, a 70-year-old former business executive, who has assets split across traditional and Roth IRAs, a 401(k), and a taxable brokerage account. His financial advisor had helped create a multi-year tax strategy that included a partial Roth conversion during lower income years before any RMDs began. By creating this approach, David saved over $67,000 in taxes over a five-year period, which can be spent on travel. 

Creating A Lasting Legacy

One of the biggest perks of using a financial advisor is working with them to create a legacy for your children and grandchildren. While everyone wants to enjoy their retirement, those fortunate enough to have enough money and not spend it all while retired can create a legacy that might be the foundation of generational wealth. 

A financial advisor can help with estate planning and talk you through the economic and personal decisions required as part of this process. This includes not just passing away but anything that could arise and reduce your decision-making ability as part of a medical issue. A financial advisor can help you set up health care directives or advise you on working with a lawyer to help draw up documents. 

The bottom line is that any good financial advisor will help build a plan that balances current financial needs and legacy outcomes to ensure that everything is possible. 

Elena wanted to work with someone as she wanted to leave money to her three children and provide a portion of her wealth to an environmental conservation organization. Her financial advisor worked with an estate attorney to create a trust, which not only ensured the children would receive money without worrying about probate but also reduced her estate taxes by $220,000, a win-win for everyone. 

Risk Management

Any time a financial advisor is involved, there is a better-than-good chance that you will be protected from too much risk. This ties to the first point about protecting yourself as financial advisors are also there to help you navigate market volatility, inflation, or any unexpected expenses that can arise while retired. 

Depending on your situation, a financial advisor might recommend setting up a fixed annuity to provide steady income for life. A retiree might want to look at locking in $2,000 per month for life, which means they won’t have to fear outliving their savings if they live longer than expected. 

You could also have someone like John, who is getting increasingly worried about market volatility. As a result, his advisor moved 40% of his $800,000 portfolio into bonds and cash, which meant he had steady income from the bonds and cash on hand to make some home repairs he was planning after retirement. 

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