As noted in many of our posts, our mission is to help you make better (or good) financial decisions in or near retirement. Two of the many decisions you will need to make are 1) whether to retain the services of a financial advisor and 2) which services you should use if you do retain one. This post is a follow-up to our post of January 31, 2020 and discusses the question of how much retirement planning you might want to do on your own vs. how much you might want to involve a good financial advisor. The answer may depend on a number of factors, including:
- your age(s),
- your relative cognitive abilities,
- your current plan,
- your financial advisor, and
- your interest in doing, and your ability to do, your own financial planning.
As discussed in our post of January 31, 2020, it is important to understand that you and your spouse are ultimately responsible when it comes to investing and spending your family’s assets during retirement even if you have retained the services of a financial advisor. Therefore, it will be prudent for you to understand your options and the implications of your financial decisions.
We will start with some background survey data on the frequency of types of services generally provided by financial advisors, move on to thoughts from Dr. Wade Pfau on the potential benefits of retaining a financial advisor (particularly in anticipation of eventual cognitive decline), follow those with a few thoughts from the Society of Actuaries and finally provide some thoughts of our own.
Background—Survey Data
According to the 2020 TransAmerica Center for Retirement Studies survey, only about 31 percent of retirees use a professional financial advisor to help manage their retirement savings/investments. Of those 31% who do, most (80%) look to their advisor to make investment recommendations. Significantly fewer survey respondents, however, indicated that they relied on their financial advisor for other types of services generally associated with financial planning. The following summarizes the percentages of retirees who indicated they used certain types of services.
Types of Services Financial Advisor Performs | % Among those Who Use a Financial Advisor |
Make retirement investment recommendations such as mutual funds, annuities, stocks, bonds, etc. | 80% |
Calculate retirement income needs | 31% |
Develop strategies for spending down savings to ensure they last my lifetime | 23% |
Tax planning and preparation | 23% |
General financial planning (e.g., college funding, cash flow analysis, budgeting, etc.) | 21% |
Inheritance and estate planning | 17% |
Recommend retirement-related products including health, life, and long-term care insurance | 16% |
Plan for possible assisted living and long-term care needs | 9% |
Plan for healthcare expenses | 8% |
Handle day-to-day finances (e.g., pay bills) | 3% |
Other | 2% |
Source: Charts 47 and 48.
The survey results summarized above imply that of those retirees who do retain the services of a financial advisor, most are likely to receive (and presumably pay for) only investment advice and not more comprehensive financial planning services.
Dr. Wade Pfau Article
In his 8/18/2021 AdvisorPerspectives article, “Do Your Retirement Plans Account for Cognitive Decline?” Dr. Pfau notes that cognitive skills tend to decline with age but confidence in one’s financial skills tend to remain constant. He summarizes his case for retaining the services of a good financial advisor as you get older by saying,
“If you have the time, interest, energy, knowledge, emotional detachment, and desire to do your financial planning on your own, then you may make an excellent advisor. If your advisor is less than capable, you might be better off saving yourself the fee or taking your business elsewhere. Otherwise, consider that both of these studies [referred to in the article] demonstrate how working with a financial advisor can lead to net positive outcomes and be cost effective, especially as you age. It doesn’t take much to improve your standard of living through better decision making, even after accounting for any fee related to planning advice.”
We agree with Dr. Pfau that declining cognitive skills can be a significant problem for older retirees, and we encourage retirees to visit the Think Ahead Roadmap discussed in our post of July 2, 2021 for steps to pursue before it is too late. We also agree with Dr. Pfau that structuring a safety-first Floor Portfolio with guaranteed income sufficient to fund essential expenses can reduce the need for keen portfolio management skills.
Society of Actuaries Decision Brief
The Society of Actuaries has released a series of “Decision Briefs” designed to provide practical considerations and advice respecting a variety of retirement decisions. The last one entitled, Finding Trustworthy Financial Advice for Retirement and Avoiding Pitfalls provides some good advice. For example, it says,
“Unfortunately, finding trustworthy advice is not always easy. Experienced financial professionals and family members can be invaluable but some may be unreliable or even dishonest. This Decision Brief provides some pointers that can help deal with the challenges.
A good place to start is to become more knowledgeable about retirement planning and investments. Many older people do have the time and ability to do this. Possessing such knowledge can help them save money and avoid possible heartache. Being better educated can also help seniors select advisors and ease interactions with those professionals.
Word to the wise: Hours spent learning about finance, investments, and other financial matters can generate huge benefits.”
Our Closing Thoughts
We generally support the idea of retaining the services of a “good financial advisor”, which we define as someone with a very high potential of adding more value to client relationships than they charge in fees. Financial services can be bundled or separated. Recent survey results show that most retirees rely on financial advisors for investment advice only rather than more comprehensive financial planning. We encourage you to pay only for the services that you feel you need.
As noted above, we believe it is important to recognize that you are ultimately responsible for your own retirement plan, and you retain this responsibility even if you retain the services of a financial advisor. Therefore, we encourage you to use the spreadsheets in this website (or some other source) as an independent due diligence check on the investment and spending strategies that may be recommended by your financial advisor.
We agree with the Society of Actuaries Decision Brief that hours spent learning about about finance, investments and other financial matters can generate significant decision-making benefits. We humbly suggest our website as a place you might want to spend some of those hours. We also agree with Dr. Pfau that building a strong floor portfolio with guaranteed income as part of your retirement plan (as we recommend) can reduce investment risks and reduce the need for possessing nimble investment management skills as you get older.
