A Pre-Retirement Money-Phobe Finds a Financial Advisor

Recently my wife and I went through the process of shopping for a new financial advisor. (Okay, I’ll admit it, our first financial advisor.) Like many of us in nonprofit world, I have always been more comfortable with people and ideas rather than finance. But, with retirement looming, my on-again, off-again, DIY-but-mostly-think-about-it-tomorrow approach wasn’t cutting it.

Exposing our financial souls to a stranger was initially humbling but,
in the end, it was a rewarding experience.

Exposing our financial souls to a stranger was initially humbling but, in the end, it was a rewarding experience. This fresh outside look helped us see the places where we’re better off than we expected and where we’re at risk. Most importantly, we now have a clearer path forward. The process made this fiercely independent DIYer a convert.

I know there’s a ton of information out there about financing your retirement, picking advisors, etc., but I thought I would share some of the guides we found useful in our shopping and planning process.

If you’ve read any recent articles about the importance of financial advisors, you’ll hear the same refrain repeated here – you don’t need vast wealth to make the cost of a financial advisor worth it. With all your different resources – 401(k)/403(b), Social Security, pension, home equity, stock market investments – some pennies are bound to fall through the cracks here and there. A good financial advisor can help keep you one step ahead of the game.

Also, a good advisor can help you identify some of your blind spots. For example, our advisor helped us see areas that I never considered to be part of financial planning for retirement, such as upping my life insurance to offset lost income for my family.

Useful Guides

Here are some useful guides to choosing a financial advisor:

Selection Basics

Like every big step, consulting an expert doesn’t mean you can skip doing your own research. Here are some basics about selecting a financial advisor:

  • You should seek out your financial advisor, not the other way around. Ignore any financial advisors soliciting your business.
  • Are they thorough and diligent about getting the whole picture, or are they trying to get enough information to sell you something? A good financial advisor will ask the right questions to get to know your complete financial landscape. A bad one will create unrealistic expectations about their ability to achieve outlandish, Buffet-esque success.
  • Although we didn’t follow this advice, conventional wisdom is that you should seek out financial advisors who work for a fee only, and not based on commission. You can find a database of fee-only advisors at the National Association of Personal Financial Advisors.

Make sure your financial planner reports to a regulating authority. Check if they are a Certified Financial Planner (CFP).

Resources for Retirement Financial Planning

It’s easy to get lost in the myriad of financial advice available on the internet. If you’ve started planning, you’re probably already taking advantage of the health and lifestyle articles featured in the online AARP magazine (be sure to check out their retirement healthcare cost quiz!). Maybe you’ve even waded into the depths of the Social Security Administration’s website, and had a look at the Retirement Estimator to get an idea of what kind of Social Security benefits you can expect to collect.

Once you start looking, you’ll find a huge variety of websites and blogs offering financial advice to retirees. Here are some great websites for exploring your financial future in retirement.

If you’re a beginner when it comes to managing finances, mymoney.gov is a good stepping-stone to full financial literacy. You’ll find basic advice for future or current retirees looking to make the most of their savings. Taking the Mystery Out of Retirement Planning is a free online booklet from the U.S. Department of Labor that offers an overview of the elements of retirement you’ll want to review during your initial planning phase.

The Department of Labor also offers an easy online calculator designed to help take “the mystery out of retirement planning.” It asks you to plug in information about your age, when you plan to retire, when you plan on collecting Social Security, and how much you already have stowed away in savings and investment portfolios. Then you’ll fill out a questionnaire about how much you spend in a month. At the end, the calculator estimates how much you need to save per month to make your dream retirement date possible.

TIAA-CREF, a financial services company, has a free tool for figuring out what kind of portfolio works best for you. Just how much are you willing to risk? Using their online questionnaire, you’ll answer a few short questions about your financial philosophy to determine how much you value protecting your assets versus taking risks in hopes of big returns. At the end of the questionnaire, you’ll look at a pie chart that shows you how best to divvy up your investments. For instance, if you indicate that you prefer low-risk investments, your pie chart will suggest that you keep the majority of your money as fixed income, and invest the smallest slice of your portfolio pie in the real estate market.

Find even more useful retirement calculators at Choose to Save. These online number-crunchers allow you to go beyond assets and savings. For instance, you can use the longevity calculator to get a better idea of how long your retirement savings will need to last.

Marketwatch.com offers much, much more than advice about managing your money during retirement. They offer a wide array of articles covering every inch of retirement planning, including elements that may not have occurred to you yet. “Who inherits your iTunes account,” for example. MarketWatch also features regular columns, including a recurring installment that weighs the financial benefits of retiring in certain states, called “Retire Here, Not There.”

Kiplinger is an online magazine that offers personal financial advice and analysis of business forecasts. In the retirement section, you’ll access a steady stream of articles about Social Security, IRAs, estate planning, and how best to manage your retirement savings and investments. Articles also cover practical lifestyle issues, such as insurance and long-term healthcare.

The Wall Street Journal’s “Retirement Planning” section keeps you up-to-the-minute on all aspects of managing your finances during retirement. These articles will advise you which investment moves make the most sense and which will most likely waste your resources. One of the most popular resources WSJ Retirement offers is the series of articles about retirement investment by the “Retirementors,” financial advisors doling out free advice about how to manage your money during retirement.

The Women’s Institute for a Secure Retirement (WISER) aims to “…improve the long-term financial quality of life for women.” Women are more likely to put careers on hold to fulfill caretaking responsibilities, a fact of life that frequently causes them to retire with fewer financial resources than their male counterparts. WISER also tackles issues like divorce and widowhood during retirement, situations that can leave women with fewer financial resources than they may have expected during their retirement years.

Figuring Out the Alphabet Soup of Credentials

  • Certified Public Accountant (CPA) is a designation by the American Institute of Certified Public Accountants for accountants that requires meeting and experience requirements and passing an exam. All CPAs are accountants, but not all accountants are CPAs. Generally speaking, CPAs are best equipped to advise you on taxes and arranging your investments and estate in order to minimize the tax impact.
  • Certified Public Accountant/Personal Financial Specialist (CPA/PFS) is a CPA who brings together the tax and organizing expertise of a CPA and the comprehensive knowledge of financial planning of a PFS. It’s an additional designation by the American Institute of Certified Public Accountants that requires completion of a set curriculum, a specified level of experience, and successful completion of an examination. Someone with this designation brings together the tax and compliance experience of a CPA along with the estate, retirement, investment, and insurance knowledge of a PFS.
  • Certified Financial Planner (CFP) is a certification granted by the Certified Financial Planner Board of Standards, Inc. CFPs have completed coursework in investing, taxes, retirement, insurance, and estate planning and have undergone a rigorous examination. This designation also means that the individual has met a job experience requirement and participates in designated continuing education. CFPs are financial planning generalists who can help you get your arms around your whole financial picture from budgeting to investments to insurance.
  • Chartered Financial Analyst (CFA) is a designation by the CFA Institute. The CFA is an investment professional who has met a rigorous set of academic professional work in a challenging exam. These individuals are primarily focused on investment advice and typically don’t cover other areas such as insurance, estate planning, etc.
  • Chartered Life Underwriter (CLU) is a designation by the American College of Financial Services for specialists in insurance, personal risk management, and estate planning. Generally, CLUs are focused on insurance, particularly life insurance, as well as insurance law, risk management, and estate planning.
  • Chartered Financial Consultant (ChFC) is also a designation by the American College of Financial Services for financial services professionals. The coursework is similar to that of CFPs, but ChFCs have not passed the comprehensive board exam required for the CFP designation.
  • Certified Funds Specialist (CFS) is a certification for individuals working in the mutual fund industry. Individuals with this designation have completed a self-study program and passed an exam by the National Association of Securities Dealers. While the CFS designation doesn’t necessarily carry with it a license to buy and sell mutual funds, some do go on to secure this license.
  • Chartered Mutual Fund Counselor (CMFC) is a designation by the College for Financial Planning requiring the completion of a course of study and passing an exam on mutual fund topics, as well as meeting a continuing education requirement. Individuals with this designation are typically versed in the types and characteristics of mutual funds and their use as an investment vehicle for retirement and other purposes.
  • Certified Employee Benefit Specialist (CEBS) is a designation for human resources professionals. It requires coursework covering a wide range of employee benefits, including group benefits management, healthcare, retirement plan design and management, compensation management, etc.

Bottom line? If you’re looking for comprehensive financial planning, a CFP, CPA/PFS, or ChFC is probably your best choice. If your needs lean towards life insurance, a CLU might be your best advisor, although CFPs and CPA/PFSs are versed in this area as well. If your focus is completely on mutual funds, then a CFS or CMFC might be appropriate. Finally, a CFA might be your go-to person if your needs are solely investment advice.

Until a few months ago, the thought of sitting down with a financial advisor ranked right up there with root canals and colonoscopies. But I’ve overcome my phobia. For me, there’s been a burst of confidence and satisfaction in shedding some good daylight on this corner of life.

For those of you who have been working with a financial advisor for a long time, you may think that my phobia is ridiculous. But, I know that I’m not the only pre-retiree with a similar affliction. To my financially phobic sisters and brothers, I say, “Jump in, the water’s fine…but don’t wait too long.”