Retirement is one of life’s most significant milestones, up there with the birth of a child and getting married.
Retirement isn’t all fun and games, though – you’ll need to stay hyper-focused on your finances to ensure you are amassing enough financial strength to fully enjoy your Golden Years. A comprehensive retirement plan involves both wealth creation and wealth preservation strategies to ensure your retirement income meets your immediate and future financial needs and long-term goals.
If you feel comfortable with your ability to determine investment horizons, assess risk, and adjust your portfolio for different levels of risk as you near and enter retirement, and create a comprehensive estate plan, then you can go it alone and self-manage your retirement portfolio. Most people, though, rely on the counsel of accredited financial, legal, and tax professionals when it comes to making these important decisions.
Potential Perils of Self-Managing Your Retirement Portfolio
There’s a plethora of information at your fingertips if you choose to self-manage your retirement portfolio or use a robo-advisor platform. However, even the most experienced investors could potentially benefit from consulting with a certified financial, retirement, or estate planner – especially when it comes to establishing a financial legacy and creating a comprehensive estate plan.
For starters, estate planning requires drafting living wills or trusts, designating powers of attorney, and other legally binding documents. There’s no room for error by “winging it” or using a low-budget online document creation service when it comes to drafting these complex legal documents.
Secondly, there are many different tax consequences to consider with both retirement portfolio management and estate planning. Failure to properly plan and execute a tax-deferment and tax-withdrawal strategy for brokerage accounts, real property investments, and retirement accounts could dilute your financial legacy by unnecessarily exposing you to capital gains and income taxes.
Lastly, solo equity investors typically underperform average annualized S&P 500 returns.¹ Solo investors aren’t usually as tuned-in to market timing and other complexities of money management as financial advisers. Bear market conditions often make them skittish, and they could make costly financial mistakes by selling at inopportune times. Although robo-advisor platforms and online investment tools can save you a lot of money in brokerage fees, they might not be your best option if you have a complex retirement portfolio.
How Financial Advisors Can Help With Your Retirement Portfolio
A financial planner can help ensure your retirement portfolio is structured in a way that meets your current or long-term financial goals. Portfolio management isn’t a “set it and forget it” strategy – market conditions and other factors change, and a financial planner can regularly revisit your portfolio to adjust, rebalance, and diversify your investment focus.
A retirement advisor will take a comprehensive look at your financial situation, take stock of all your assets, investments, and other sources of income, and weigh those against existing debts to determine how your money will stack up in retirement. He or she will create a detailed financial plan that takes into account the money you've currently amassed and how much more you might potentially need to obtain your financial goals in retirement. Depending on your advisor’s credentials, they may rebalance your portfolio to maximize potential returns to adjust for different levels of risk as you near retirement.
Credentials are extremely important to ensure you are receiving insight from highly experienced financial professionals who have passed rigorous exams as well as agreed to a strict code of ethics regarding integrity, competence, and confidentiality – your needs supersede theirs in all matters. A few designations for retirement planners include:
- Certified financial planner (CFP)
- Chartered Retirement Planning Counselor (CRPC)
- Retirement Income Certified Professional (RICP)
- Chartered Retirement Plans Specialist (CRPS)
Fees for financial planners and retirement planning specialists can vary – be sure you know their fee structure before engaging their services.
The Bottom Line
There’s a lot more that goes into managing a retirement portfolio than plugging some information into an online advertising platform and picking from a few different investment strategies. Managing your retirement portfolio probably should be left to the professionals unless you are a legal, financial, and wealth management expert – and even highly experienced retirement and estate planners rely on other legal and taxation professionals to help them best serve their clients.
Sources:
1. Quantitative Analysis of Investor Behavior, Dalbar, https://www.dalbar.com/ProductsAndServices/QAIB
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.
