A recent report from insurance research company LIMRA found that 88% of pre-retirees have thought about how they will generate income in retirement, yet 50% lack a recently updated written retirement plan. Only 40% work with a financial advisor.
The survey, fielded in April, covered 486 pre-retirees and 804 retirees.
Among pre-retirees, 77% of those who work with an advisor or planner rated themselves highly prepared (7 or higher on a 0-to-10 scale), compared with 47% of those who don’t.
It is tempting to read that as proof an advisor makes you ready. The survey cannot show that. People who hire advisors may also be more engaged with their money to begin with, and feeling prepared is not the same as being prepared.
What a current plan covers
A written plan does not need to be long. It needs answers to a handful of questions, and you should revisit it when something changes.
- When to claim Social Security. For those born in 1943 or later, benefits rise 8% for each year you delay past full retirement age, up to age 70, so the claiming date is one of the bigger decisions in the plan.
- Which accounts to tap first. The order of withdrawals from pre-tax, Roth and taxable accounts shapes your tax bill, including your capital gains rate.
- How required withdrawals will work. Employer plans such as 401(k)s must each satisfy their own required minimum distribution, and missing one can trigger a 25% penalty on the shortfall.
- Who pays for long-term care. Medicare does not, and most other health insurance does not either. The costs of living into your 90s are the part most people never plan for.
Draft it yourself first
Work through those four questions with your latest Social Security statement, account statements and last year’s tax return. Even rough answers show where you are guessing. A draft also makes any later conversation with a professional more productive.
When an advisor earns the fee
Complicated tax situations, large pre-tax balances or a spouse who has never seen the numbers are common reasons to bring someone in. Ask whether the person is a fiduciary, how they are paid and what the total annual cost will be. The letters that follow an advisor’s name — CFP, CFA, CPA — each signal different training and obligations.
SmartAsset's free tool matches people with up to three fiduciary advisors, who are legally required to prioritize your interests. If you have $100,000 or more in savings or investments, get matched in minutes. Advisors can help spot tax savings, Social Security strategies and planning gaps.
For more ways to find one, see the Money Talks News financial advisors page.
Add a Comment