Additional menu

Role of Financial Advisors in Retirement Planning

Retirement planning is important, but it can be challenging for the average person. Learn how a financial advisor can help you prepare for life after work.

For some, retirement can feel like a world away; however, it’s always fast approaching. It’s never a bad idea to thinking about how your finances will be in your post-working years. With the proper plan in place, you can help minimize stress and set yourself up for financial security later in life.

Ensuring you’re on track for retirement can seem like a tough task, especially with those years often being so far off. For this reason, it may be smart to employ a financial advisor to help take this project on. One can help you develop a comprehensive plan that typically leverages your current income and investments to maximize your wealth later in life.

In this article, we’ll explain why a financial advisor is integral to the retirement planning process. This includes a list of the types of experts that’ll be most helpful. We’ll also tell you about the services they’ll commonly provide if you were to hire one. Finally, you’ll learn how to find the right professional.

What Is a Financial Advisor?

Financial advisors are professionals who offer financial guidance for compensation. They’re able to work with you to achieve both short- and long-term goals. Most of these experts have years of experience and carry various credentials that cement their knowledge in the space.

While you can expect an advisor to be able to help with various aspects of your finances, such as investment management, estate planning, and retirement planning, some are more specialized than others. In the context of retirement, you should seek someone with credentials and experience related to planning. These professionals typically carry the following titles:

  • Certified Financial Planner (CFP). These are experts in financial planning who’ve received a designation from the CFP Board. To become a CFP, candidates must complete rigorous education requirements and pass an exam. They must also act in a fiduciary capacity.
  • Chartered Financial Consultant (ChFC). ChFCs receive their designation from The American College of Financial Services. They specialize in financial planning and must adhere to strict ethical standards.
  • Retirement Income Certified Professional (RICP). RICPs specialize in helping clients plan and manage their income sources for retirement.

What Is Retirement Planning?

Retirement planning involves paving a clear path toward living a comfortable life after you’re done working. Depending on the person, this process can vary. However, there are some elements all plans should include. According to Jeff Rose, CFP and founder of GoodFinancialCents, “Effective retirement plans typically encompass a clear understanding of expected retirement expenses, a well-diversified investment portfolio, and a strategy for withdrawing assets in a tax-efficient manner.”

Income is another crucial aspect of a retirement plan. And, as you’ll see later in this article, it’s a factor that your financial planner should be able to help you maximize. Rose explains that determining how income sources such as “Social Security, pensions, and personal savings” fit into “the overall plan” is critical.

How a Retirement Financial Advisor Can Help

Having a financial advisor by your side to plan for retirement can go a long way. It enables you to leverage their vast knowledge and experience to identify opportunities, make smart investments, and overcome any challenges. Below, we explain how an advisor can typically help you establish an effective retirement plan:

1. Assessing Your Financial Profile

An advisor’s first step is to gain an understanding of your financial profile. This is a combination of your goals, risk tolerance, and time horizon. Once a professional knows each factor, it’ll be easier for them to help you with tasks like picking investments and establishing a budget.

As mentioned, your goals play a huge role in developing a retirement plan. This is mainly because different aspirations warrant unique approaches. For instance, if your goal is to travel extensively, your advisor may want you to put away more money over time to fund this lifestyle.

2. Establishing a Budget

Another important task an advisor can assist you with is creating a budget. By doing so, you ensure you’re saving enough to invest toward your retirement. This process involves managing your cash flow (income and debt) so that you have more to save. A financial planner can sit down with you and help you make the hard choices that can free up enough money to save significant amounts.

How much you should save each year depends on your goals and financial situation. However, Rose points out that a “common guideline is to save at least 15% of your income annually” for your post-working years.

3. Investment Planning and Management

Investing smartly is one of the keys to retirement planning. Additionally, there are several investment vehicles built for retirement, such as 401(k)s, IRAs, pensions, and annuities. An advisor can help you decide which works best for you. Once your accounts are set up, they can also manage and monitor your portfolio.

Keep in mind that a good financial advisor will take your goals and risk tolerance into account. Investing for retirement usually necessitates buying and holding safer assets, rather than shooting for big returns. They should explain how various strategies, investments, and asset allocations can expose you to risk or limit the return on your investments.

4. Maximizing Retirement Income

Your retirement income is important to maintaining your desired lifestyle. And, per Rose, a “substantial hurdle” is “accurately estimating future expenses.” So, it’s imperative to maximize your income as much as possible. The general rule is that you’ll need at least 70% of your pre-retirement income to live comfortably once you stop working.

Retirement income can come from several different sources, such as Social Security payments, a part-time job, and your investments. Some former employers may also pay you a pension. Either way, it’s key to sit down with your financial advisor to optimize the amount of money you have coming in.

5. Social Security Optimization

As mentioned above, Social Security is an often essential income stream during retirement. However, it can take nuance to maximize payments. Timing and how much you make throughout your career are key to the size of your benefits once you retire.

Your financial advisor will be able to provide expert advice on when you should begin receiving benefits. This will be a holistic decision based on your preferred retirement date. You’ll also receive important advice regarding spousal and survivor benefits to help increase your income.

6. Overcoming Challenges

Retirement planning isn’t always a smooth process. Often, there are obstacles you and your advisor will need to tackle. According to Carla Adams, CFP and founder of Ametrine Wealth, one of the most common challenges is that clients simply have “not saved enough money earlier in life.” She explains that by doing so, clients have “missed out greatly on compound growth over the years” and that the only way to remedy it is by “saving much larger chunks of their income” and potentially planning to “work longer.”

Another obstacle an expert can help you with is organizing your savings. Adams indicates that many clients “end up with various accounts,” such as “old 401(k)s with previous employers, IRAs in different places, etc.” She says that “working with a financial advisor can help you track down and consolidate all of your accounts floating around out there.”

Overall, a financial advisor helps ensure you aren’t alone if challenges arise. This can help give you peace of mind and allow you to plan for retirement more efficiently.

7. Adapting to Changing Conditions

After you sit down with an advisor to develop a retirement plan, it isn’t necessarily set in stone. Often, circumstances change, and you’ll need to adapt. For instance, the market may experience a downturn, which requires you to adjust your investment strategy. Or you may experience a significant life event that greatly impacts your finances, such as a marriage or divorce.

Because life constantly evolves and plans change, your advisor should be more than willing to help you adapt. If you have concerns about your retirement plan or if there has been a significant change in your life, you shouldn’t hesitate to ask your financial planner about it.

Do I Need a Financial Advisor?

Retirement planning can feel like a tall task, especially if you’re starting at a young age. Not only this, but it can take some nuance to identify opportunities to help you build wealth for your later years. For this reason, we recommend having a financial advisor in your corner to properly plan for retirement.

How to Find a Retirement Advisor

It’s important to find a financial advisor who is qualified to help you plan for retirement. More specifically, you should pay attention to an expert’s credentials, years, of experience, and expertise. Additionally, professionals with CFP and ChFC designations must uphold a fiduciary duty.

It’s also key that you work with a retirement advisor who you get along with. Often, this is the person you’ll be meeting with for years to come. So, at your first consultation, get to know a prospective expert and ensure you have a rapport with them.

If you need help finding an advisor in your area, we recommend using this matching tool. It’ll ask you to fill out a short quiz regarding your goals and current financial situation. Then, it’ll present you with up to three vetted professionals near you.

Frequently Asked Questions

Do you need a financial advisor once you retire?

After you retire, a financial advisor can still be an important asset for you. New tasks, such as estate and healthcare planning, can be a burden to tackle on your own. Having an expert on your side can ease this process and ensure you do it the right way.

What type of financial advisor is best for retirement?

Financial planners, such as CFPs and ChFCs, are most well-equipped to help you plan for retirement. These experts have years of experience and must adhere to a fiduciary standard.

Can a retirement planner help clients manage investment accounts?

Yes, retirement planners can manage your investments for you. This includes accounts like 401(k)s and IRAs. Jeff Rose, CFP, explains that having a planner manage your investments can help you implement proper “asset allocation” and “investment selection.”

If you hire a financial planner to manage your investments, it’s important to find a fiduciary advisor. Otherwise, they may make investments that aren’t in your best interest. As mentioned above, look for advisors with certifications like CFP and ChFC, which are bound by this standard.