Questions To Ask Your Financial Advisor About Retirement


Retirement is the golden period of your life, provided you save well for it. If you have sufficient retirement savings, you can spend your non-working years traveling, enjoying life, spending time with your family, and doing anything else you like. However, if your retirement savings are below the required limit (average Americans feel they require $1.9 million for retirement), you might need to either delay your retirement until you save enough or take up a part-time job to fund your expenses during retirement. As per a recent study, more than half of the workers (55% of those surveyed) plan to work during their retirement. Of this 55%, over 35% will work in retirement because of a lack of savings. 14% of these people will rely on their retirement job as their primary source of income.

The statistics are appalling. Coupled with the increasing life expectancy rates, the numbers can be even more worrying. However, if you start saving for retirement early, it is possible to create a significantly large retirement corpus and spend your retirement as desired. It is advisable to engage with a professional retirement financial advisor to create a retirement plan as early in life as possible and follow the plan to ensure your retirement is financially secure. According to a recent survey, people engaging the services of a financial advisor are more likely to be happy, confident, and stable in their financial and personal lives. But of all those surveyed, only one-third of participants said they worked with a financial advisor. 66% of these respondents felt financially secure because of the professional help they received regarding their retirement and other financial aspects. Further, the study reported that those who work with a financial advisor are more likely to better balance their current spending and retirement savings. All these factors have a direct bearing on retirement readiness.

But before you think of engaging with a retirement financial advisor, it is important to be sure of your retirement needs, goals, etc., and then assess if the financial advisor is competent to offer the required services. Retirement planning can often be confusing and overwhelming. Understanding how your retirement financial advisor aims to protect you from retirement risks and how they plan to financially secure your retirement can help you be more confident about your future. Hence, it is important to know and keep ready questions to ask your financial advisor in your first meeting.

Here are some questions to ask about retirement from your financial advisor:

1. Is my retirement plan on track?

The first financial question to ask your retirement financial advisor is if your retirement plan is on track. As per a recent report, most Americans are under-saving for retirement. One in four Americans have no retirement savings, and the remaining portion of people are not setting aside sufficient funds. As per the report, the average retirement savings for people between 55 and 64 years is only $120,000, which translates to only $1,000 per month. Low average balances and rising life expectancy figures indicate an urgent need for retirees to reconsider their retirement plans. Further, with Social Security reserves likely to be over by 2034, retirees relying on Social Security benefits need to reassess their financial plans for the latter part of their lives. Hence, when you list down things to ask a financial advisor, make sure to inquire if your retirement savings plan is on track. The ideal retirement savings for a comfortable retired life depend on your age, income, standard of living, inflation, retirement expenses, etc. Your retirement financial advisor will assess your retirement corpus and evaluate if your retirement savings are as per the general standard. Your retirement financial advisor might also use the 80% retirement planning rule to know the right retirement savings for your age. As per this benchmark, your total retirement savings should at least be 80% of the pre-retirement income. If your retirement savings fall short of the benchmark, you can consult your advisor to know how to improve your savings rate. The advisor will help you create an optimal budget, spend less, and save more to ensure you can save sufficient money for the non-working years. The expert will also help you reduce your debt, identify additional income sources, invest efficiently, etc., to help you secure a comfortable retirement. However, the 80% rule is applicable only when your retirement expenses remain the same as your present expenditure. If you expect the retirement lifestyle to cost you more than your lifestyle today, you would need a higher percentage of pre-retirement income.

2. When can I retire?

Part of the important things to ask a financial advisor includes what the right time to retire would be for you. The retirement scenario in America has drastically changed over the years. People today are living longer because of improved healthcare facilities. But on the contrary, there is no increase in retirement financial support. Retirement pension, workplace retirement plans, Social Security benefits, etc., have been stagnant or recorded a minimal rise in benefits for retirees. Hence, it may be advised to discuss your retirement plans with your financial advisor, especially if you are considering an early retirement (before the age of 65). According to LIMRA Secure Retirement Institute, half of Americans quit working between the ages of 61 and 65, and 18% of people retire even earlier. Early retirement significantly affects your retirement stability since it means you have to save a higher sum than an average retiree retiring at the right age. Early retirement also has a corresponding impact on your Social Security benefits. Therefore, you can consult your retirement financial advisor and know when is the right time for you to stop working and retire. Your advisor will assess your retirement plan, quantify your retirement account balances, and consider your overall financial worth to determine the right age for you to retire so that you have a comfortable life.

3. How can I save better for retirement?

Apart from asking about the right age to retire, another financial question to ask your advisor is how can you save better for retirement. Your retirement savings are the foundation of a comfortable retirement. Your advisor can help you improve your savings by investing wisely and creating a high-performing investment portfolio. The advisor will create a portfolio that best aligns with your risk tolerance and financial goals. Depending on your risk profile, the retirement financial advisor will invest in equities and bonds. Further, the advisor might suggest diversifying the portfolio and investing in international stocks, U.S. small stocks, commodities, etc. The advisor will also timely rebalance your portfolio to maintain the risk tolerance as per the specified investment mandate.

4. What should I do with my retirement savings plans?

Your investment portfolio is important but is subjected to taxes, which reduces its potential to support your retired life. As a wise retirement planner, you should be able to take advantage of tax-advantaged retirement savings plans, such as an IRA (Individual Retirement Account) and employer-sponsored tax-advantaged accounts like a 401(k). When consulting a potential retirement financial advisor, make sure to inquire about how different retirement accounts can benefit you. These experts have a wealth of knowledge about retirement savings accounts. They can guide you on how to max out your IRA and 401(k) plans and then invest your money elsewhere. The retirement financial advisor can advise you regarding the eligibility criteria, withdrawal rules, penalties, Required Minimum Distributions (RMDs), etc. When you are close to retirement, they can also help you effectively roll over your 401(k) plan into an IRA. This will help you keep your retirement fund for a longer duration. Using a Roth 401(k) or a Roth IRA is even more beneficial than their traditional counterparts. The Roth accounts offer better tax advantages, higher contribution limits, wider investment choices, and higher flexibility. All of these benefits work to your advantage during retirement.

5. Will I pay taxes during retirement?

When considering what questions to ask a financial advisor, retirement taxes top the list. Retirement does not mean freedom from taxes. You would be liable to pay taxes even after you retire. However, your retirement tax liability will depend on your retirement income, residing state, and retirement account withdrawals. A lapse in judgment can cause you to pay a hefty sum in retirement taxes. Hence, ask your retirement financial advisor about taxes payable during retirement and smart tax strategies to reduce your retirement taxes. If you do not employ tax-efficient strategies, you could likely pay a large sum as retirement taxes. This can cause you to outlive your assets sooner than anticipated. Your advisor can assist you in reconsidering your investment portfolio by opting for tax-efficient investments like municipal bonds that are free from federal taxes. Your advisor can also suggest investing in qualified stocks as qualified dividends get favorable tax treatment over ordinary income. Alternatively, to reduce your tax liability in retirement, your retirement financial advisor can suggest redirecting your savings into a Roth account like a Roth IRA or a Roth 401(k) to take advantage of the Roth tax-free status for savings, receipts, and withdrawals. Further, the financial advisor will also help you plan your Social Security withdrawals along with other retirement savings account withdrawals to ensure that your annual taxable income during retirement remains low. That said, you can also consult your retirement financial advisor while picking a suitable state to live in after retirement. The state you choose will influence your taxes during the latter part of your life. Few of the most tax-friendly U.S. states include Tennessee, Arkansas, South Carolina, Colorado, Nevada, District of Columbia, Hawaii, and Delaware. Some of the most unfriendly U.S. tax states include Texas, New York, Iowa, Vermont, Nebraska, Kansas, Illinois, and New Jersey. Living in a less tax-friendly state can increase your average tax burden by $10,000 per year than living in a tax-friendly state.

6. When can I withdraw my Social Security and retirement account savings?

Having a sound withdrawal plan is as vital as having the right retirement saving strategy. Withdrawals impact your retirement security and also your taxes. Ideally, your financial advisor will help you create an efficient withdrawal plan so that you minimize your taxes and do not outlive your retirement savings. The advisor will suggest the retirement accounts you should withdraw from first and how to structure your drawings to maximize returns and avoid penalties. For instance, you cannot withdraw money from your 401(k) plan before 59.5 years. The IRS (Internal Revenue Service) levies a 10% penalty on funds withdrawn before this age. But you also cannot indefinitely keep your funds in a 401(k). You have to take mandatory distributions known as RMDs from specific retirement accounts at a certain age. Not taking RMDs by December 31st of each year post 72 years will result in a penalty. That said, your retirement financial advisor will help you with this and other withdrawal strategies, such as for your Social Security. Legally, you can take Social Security benefits from the age of 62. However, delaying your Social Security withdrawals will improve your returns. For example, a person who takes Social Security benefits at 68 (one year after the official retirement age) will receive 108% of the total monthly benefits. An average retiree can increase their Social Security cheque by 50% if the withdrawals are delayed until 70 years. These decisions play a vital role in establishing your retirement readiness and should be one of the relevant things to ask your financial advisor.

7. How can I secure my healthcare expenses during retirement?

Your health has a direct influence on your retirement readiness. As you age, healthcare expenses start consuming a major share of income. As per a Fidelity report, an average couple retiring in 2021 will need $300,000 (as per the present dollar value) to fulfill their retirement healthcare costs. This figure does not account for long-term care expenses, which a person aged 65 years has a 70% chance of requiring, as per the U.S. Department of Health and Human Services. Hence, this is an important question to ask when engaging with a retirement financial advisor. Your financial advisor can help you understand how to cut down your healthcare costs as a retiree and also assist you in making smart investments that can cover your healthcare expenses. For instance, your financial advisor will support you in choosing the right Medicare plan. A Medicare plan is a federal health insurance plan covering hospital and medical care bills for people above the age of 65 years. Opting for the right Medicare plan – A, B, C, or D – can help you significantly reduce your out-of-pocket medical expenses during retirement. You can ask your retirement financial advisor to suggest a Medicare plan that best fits your needs. It is advisable to opt for Medicare Plan C, also known as the Medicare Advantage plan, even if you have to pay high premiums in the present. Medicare Plans A and B only offer restricted healthcare coverage, whereas the Medicare Advantage plan covers most medical costs, assuring your retirement healthcare expenses are adequately covered. Alternatively, your retirement financial advisor might suggest investing in a Health Savings Account (HSA). An HSA allows you to make tax-deductible contributions each year, subject to the annual upper limit. The money in an HSA grows tax-deferred and offers tax-free withdrawals for qualified medical expenses, such as long-term care insurance premiums, eligible dental care costs, vision expenses, etc. Apart from this, your retirement financial advisor can help you understand how to effectively invest in long-term care insurance, which is a must for a secure retirement.

8. What happens to my retirement savings and estate assets when I die?

It is vital to understand what will happen to your retirement savings and estate assets when you are not around. Ideally, for this purpose, the retirement advisor will guide you on how to list down nominees for all your retirement accounts and, most importantly, create a holistic estate plan. The expert can help you prepare a will, deploy profitable investment tools, streamline foreign assets, review the value of assets, keep a tab on your estate taxes and penalties. If you want to assign a power of attorney or set up a trust, you can ask your financial advisor to guide you in this aspect too.

To conclude

It is advisable to have an open and honest conversation with an experienced financial advisor to ensure you are making the right progress towards the years leading up to your retirement and later. Prepare a comprehensive list of questions to ask about retirement to get a concrete understanding of what you want out of the engagement and how your retirement financial advisor can help you achieve those milestones. Professional financial advisors are competent and qualified to offer comprehensive retirement planning services, ensuring you are financially secure during the golden years of your life.