Is a Financial Planner Right for You?
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Question: I had $225,000 in my 401(k) and then I increased $125,000 to a 7% annuity because I wanted income. I just turned 65 and I want to retire in six months, but I don’t know what to do with the other $100,000. What should I do? Should I hire a financial advisor to help? (Are you also looking for a financial advisor? You can use this tool to find an advisor that fits your needs.)
Answers: Congratulations on your upcoming retirement — and know that it’s totally normal to feel like hiring a financial advisor right now. Whether you need one or not really depends on your preferences and how comfortable you are with your own finances, and we’ll get into that later.
Having a problem with your financial advisor or looking to hire a new one? Email [email protected].
But to figure out how to put that $100,000 to work, you first need to understand the bigger picture of your life, your finances, and what you need that money for. Look at your other sources of income, spending needs, how much you’re taking out of various accounts when you retire, and the tax implications of it all, says Justin Pritchard, a certified financial planner at Approach Financial. “Determine how much money you need to live on per year, and then you can break that down into monthly needs, taking into account income from Social Security or other sources like a pension,” says certified financial planner Patrick Logue of Prudent Financial Planning. This guide can help you figure out some other financial things you need to figure out to see if you’re financially ready to retire.
Knowing this, you understand that your $100,000 can be used in many ways — you can withdraw it, transfer it to another retirement account, or keep the money in your 401(k), among other things. And what’s right for you depends on how you want to use that money. “In order to make the right decision for you, an advisor will collect your financial information and ask questions about you. They analyze your current financial situation and determine the best place to put your money,” says Spark Financials Certified Financial Planner Danielle Miura. You can do it yourself, of course, but you need to know how much money you need for retirement and how much risk you’re willing to take with those $100,000+. Note that since you have the option to keep the money in your 401(k) and let it grow, you probably won’t want to withdraw it unless you need the money for essential living expenses, pros say.
Another piece of the puzzle? It would be helpful to “know more about the annuity, like whether it’s a single-premium deferred annuity (SPDA),” says Logue. An SPDA is an annuity funded with a single lump sum that provides a guaranteed income with tax-advantaged growth of the investment. This can be beneficial because you’re being offered a guaranteed rate of return, which can make retirement planning easier, and you won’t have to pay tax on the pension until you start taking distributions.
If that sounds like a lot, a consultant can help – and you can use this tool to find a consultant that fits your needs.
“If you decide to work with a financial advisor, it’s a good idea to look for a fiduciary who has a legal obligation to work in your best interests and cannot recommend any product or service to you simply because they are an agent So financial kickback gets,” says Alana Benson, investment spokesperson at NerdWallet. Here are the different types of advisors you might encounter and here are the questions to ask them.
Financial planning is so much more than just managing investments. “It’s about reducing potential risks to your retirement, tax efficiency, wealth protection, wealth preservation and more. If you don’t have a long-term care plan, the risk to your nest egg is greatly increased compared to having one. Not having a proper, proactive care plan can wipe out a lifetime of savings,” concludes Midtown Financial Group’s Grace Yung, board-certified financial planner.
Having a problem with your financial advisor or looking to hire a new one? Email [email protected].
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