17 Questions To Ask A Financial Advisor About Retirement

Getting ready for retirement is a key part of shaping a comfortable future. The decisions you make now will shape how you live later on. Whether you’re only beginning to think about retirement or already planning, it’s wise to approach the process thoughtfully. Finding a suitable advisor is one of the most important actions you can take.

By asking the right questions, you can identify an advisor whose approach aligns with your goals. This post will discuss the questions to consider when choosing a professional who can assist you on your path to retirement.

Foundational Questions

1) What Are Your Qualifications and Credentials?

When planning your retirement, it’s important to carefully consider the qualifications of the financial advisor you choose. Just like a doctor’s diploma reassures you of their expertise, an advisor’s credentials can provide confidence in their ability to guide your financial future. Here are some major designations you may want to keep an eye out for:

Certified Financial Planner (CFP®): This designation signifies a broad expertise across key areas of financial planning, encompassing investments, tax strategies, and retirement planning. CFP® professionals follow ethical guidelines that require them to prioritize their clients’ interests. This designation is the most popular among financial advisors and the most recognized by consumers.

Chartered Financial Analyst (CFA®): A CFA® designation indicates a high level of proficiency in investment research and portfolio management. Advisors with this certification are well-versed in analyzing complex financial markets and products.

Chartered Financial Consultant (ChFC®): The ChFC® certification covers a broad range of financial planning topics, with a focus on areas such as estate planning, insurance, and retirement income strategies.

Accredited Investment Fiduciary (AIF®): An AIF® designation signals that the advisor is trained to act in a fiduciary capacity, meaning they are committed to putting their clients’ financial interests first in all decisions. This designation is common among Financial Advisors who work with employer sponsored retirement plans.

Please Note: These are just a few of the many designations in the financial advisory industry. When selecting an advisor, you might also want to inquire about other qualifications, such as experience with Social Security strategies, Medicare planning, or specific knowledge in areas like estate law or tax planning. 

2) Are You a Fiduciary?

Having a “fiduciary” in your corner is all about trust. A fiduciary advisor is someone who must put your needs ahead of their own when giving investment advice. This means that if they recommend a particular financial product or strategy, it’s because they believe it truly serves your best interests, not theirs.

Not every advisor is a fiduciary. Some might have arrangements where they earn a commission from the products they sell to you, which could create a conflict of interest. Knowing whether your advisor is bound by fiduciary duty can give you the reassurance that their advice isn’t influenced by anything other than your well-being, especially when you’re making big financial decisions for your future.

3) How Are You Compensated for Your Services?

Understanding how an advisor gets paid may provide you with insight into their motivations. A fee-only advisor, for instance, is paid directly by you, usually through a flat fee or a percentage of your assets they manage. This means their income isn’t tied to selling you particular financial products, reducing the likelihood of a conflict of interest.

Conversely, commission-based advisors receive compensation from the firms whose products they promote, which may sway the guidance they offer. By asking these questions up front, you can better assess whether the advice you’re getting is truly in your best interest or if it might be swayed by how the advisor is able to earn.

Retirement-Specific Planning Questions

4) What Is Your Approach to Retirement Planning?

Before deciding on an advisor for your retirement, it’s important to understand how they plan to guide you through this significant life stage. Advisors vary in their strategies based on their experience and client needs. Some might emphasize preserving your savings as retirement nears, while others could focus on growing your investments to keep up with rising costs. To ensure their plan aligns with your goals, ask about these aspects:

Risk Tolerance: How does the advisor evaluate your comfort with risk? The amount of risk you’re willing to take influences the types of investments they suggest. A cautious approach might lead to safer investments, while a higher tolerance could mean a more aggressive strategy.

Time Horizon: How does your retirement timeline impact their strategy? The plan for someone approaching retirement will differ from that of someone already retired. Your advisor should tailor your investments based on how close or far you are from retirement.

Income Needs: What is their plan to make sure your retirement income meets your expenses? Your advisor should be aware of your expected costs and create a plan that ensures your savings and investments will support you throughout retirement.

5) How Will You Help Me Maximize My Social Security Benefits?

Social Security serves as a major component of retirement income, and making well-considered decisions about timing and claiming benefits is key. The choices can be complex, particularly when considering spousal or survivor benefits. An experienced advisor will guide you through these decisions, helping you make choices that benefit you most.

Ask your advisor how your health and life expectancy will factor in when it comes to claiming benefits. If long lifespans run in your family, postponing your benefits could lead to larger payouts. However, if you face health challenges, claiming sooner might be the better option to secure financial support.

6) What Is Your Strategy for Generating Income During Retirement?

A huge hurdle in retirement is determining how to generate a consistent income without the reliability of a paycheck. You need to have a plan that helps to keep you financially secure. Your advisor might propose several options.

Annuities: Annuities provide a fixed income for life, offering stability. However, they can come with high costs and less flexibility. It’s important to consider these factors before committing.

Dividend-Paying Stocks: Purchasing dividend-paying stocks can provide both a steady income and opportunities for financial growth. However, market downturns can impact both your returns and the value of your investments.

Bond Ladders: A bond ladder involves buying bonds with different maturity dates to provide a steady income. This strategy can manage interest rate risks but might offer lower returns compared to alternatives.

Rental Income: Renting out property can generate steady monthly income, but it also comes with responsibilities like maintenance and the risk of vacancies. Think about whether you’re ready to handle these aspects.

You can also consider withdrawal strategies from the investments you already own. Safe withdrawal strategies, including the 4% rule, guardrails, and others are helpful tools when planning for a consistent retirement income.

7) How Do You Factor Healthcare Costs Into Retirement Planning?

Healthcare expenses can become a significant financial burden as you get older. These costs cannot be overlooked. When discussing your retirement plan, consider how your advisor will address the following areas:

Medicare and Additional Insurance: Medicare covers many healthcare expenses, but not everything. An advisor should help you understand what Medicare covers, what it doesn’t, and whether you need additional coverage like Medigap or Medicare Advantage.

Healthcare Pre-65: If you’re not yet eligible for Medicare, an advisor can also assist you with other options including Marketplace coverage, as well as HSA eligibility and strategy.

Long-Term Care Planning: Many retirees may need long-term care, which can be expensive and is not typically covered by Medicare. Your advisor should discuss options like long-term care insurance or saving specifically for these potential expenses.

8) What Is Your Approach to Managing Required Minimum Distributions (RMDs)?

When you reach the age where Required Minimum Distributions (RMDs) are mandatory, these withdrawals can significantly impact your retirement savings. Poor planning can result in higher taxes, so it’s important to manage RMDs carefully.

It’s important to know how your advisor will help you handle RMDs to avoid unnecessary tax burdens. This may require carefully timing withdrawals and coordinating them with other sources of income. Moreover, as RMDs reduce your retirement account balances, your investment strategy might need to change.

9) How Do You Plan for Inflation in Retirement?

Inflation can eat away the value of your nest egg, making it harder to maintain your lifestyle as costs rise. Your advisor needs to have a strategy to protect against this. Ask them about inflation-resistant investments and other strategies. Investing in assets like stocks or real estate, which tend to grow over time, can help preserve your purchasing power. Moreover, a diversified portfolio that balances growth and stability can help protect against inflation while ensuring your finances stay secure.

Please Note: In 2022, inflation hit record-high levels in the United States, and has remained noticeably high over recent months.¹ You may want to ask the advisor how they’ve helped their clients hedge against inflation to get a better understanding of their strategies.

10) What Is Your Strategy for Managing Taxes in Retirement?

Taxes can take a huge chunk out of your retirement income if not managed effectively. Without a well-planned tax strategy, you could end up paying more than necessary, which can reduce your savings over time. It’s important to understand how your advisor plans to help you minimize taxes on your retirement income. Review these concepts and ask the advisor about them:

Tax-Efficient Withdrawals: The sequence in which you withdraw funds from your accounts can greatly affect your tax liability. An advisor might suggest starting with taxable accounts first, allowing your tax-deferred accounts to grow longer.

Roth Conversions: Converting a portion of your traditional IRA to a Roth IRA can be beneficial, even if it requires paying taxes now. The benefit of Roth IRA withdrawals is their tax-free status during retirement, which can result in substantial savings down the road. An advisor will help you determine if you’re eligible for a Roth conversion, and if one is worth making.

Tax-Loss Harvesting: By selling investments that have lost value, you can offset gains elsewhere in your portfolio, reducing your taxable income and lowering your overall tax bill. Ask the advisor if they have ever leveraged this strategy with a client and how they might determine if such a strategy makes sense for you.

Investment Strategy and Risk Management Questions

11) What Is Your Investment Philosophy for Retirement?

When choosing a financial advisor, it’s important to understand their views and strategies on various financial topics, as these will directly influence how they manage your retirement savings and address your specific needs.

Here are some key areas to discuss:

Diversification: Inquire about their strategy for distributing your investments across various sectors or asset classes to mitigate risk. Spreading out your investments can help shield you from major losses in any one area of the market.

Asset Allocation: Discuss their approach to determining the allocation of your funds between stocks, bonds, and other investment vehicles. This strategy is essential for maintaining a balance between potential growth and the stability you’ll need as you approach and enter retirement.

Risk Management: Learn how they manage risk, especially as you get older. A good advisor should have a plan for safeguarding your savings while still seeking the growth needed to meet your financial goals.

Debt Management: Discuss their approach to managing debt, especially as you near retirement. Understanding how they plan to handle existing debts or advise on new ones can be crucial for maintaining financial stability. A good strategy may involve paying down high-interest debts before retiring or restructuring debt to reduce financial strain in your later years.

Estate Planning and Philanthropic Giving: Ask about their role in helping you organize your estate. This includes planning for how your assets will be passed to those you love and the causes you care about, with minimal taxes and legal complications.

12) How Do You Adjust Investment Strategies as Retirement Progresses?

As you advance through retirement, your financial situation and goals may change, which means your investment strategy should evolve as well. Early on, the focus might be on growing your savings so they are able to last you throughout your retirement. But as you get older, the priority often shifts to providing income and supporting your life.

Your advisor should regularly reassess your portfolio to ensure it aligns with your current stage of life and financial needs. Make sure they explain how they assist in adjusting your investments whenever the time comes to do so.

13) How Do You Monitor and Report on Investment Performance?

When you’re considering a financial advisor, it’s important to ask how they will keep you updated on the progress of your investments. Knowing how your portfolio is being tracked and when you’ll receive updates is essential. Be sure to ask about the type of reports they will provide—these should clearly show the performance of your investments, highlighting any gains, losses, and whether changes need to be made.

It’s also crucial to understand how the advisor will respond if things aren’t going as planned. Will they promptly address any issues and explain the reasons for any underperformance? Will they propose new strategies to realign your investments with your financial goals? Regular reviews and straightforward communication are key to keeping your retirement plan on the right path as your financial situation evolves.

14) How Often Will We Review My Retirement Plan?

Regular reviews of your retirement plan are needed. It’s important to know how frequently your advisor will conduct reviews and what their process is. An annual review, at a minimum, is recommended. During these reviews, your advisor should revisit your goals, evaluate how your investments are performing, and ensure that your retirement plan is still on the right track.

That said, depending on your life events—such as changes in health, major purchases, or shifts in family dynamics—more frequent check-ins may be beneficial. Ask if they do reviews on a more frequent basis (i.e. bi-annual or quarterly). Ask about on-demand consultation calls and if they charge anything extra for them.

15) What Happens to My Retirement Plan if Something Happens to You?

You need to be aware of what will happen to your retirement plan if your advisor is suddenly unavailable due to illness, retirement, or other unforeseen events. You need to know if there is a plan in place for someone else to take over without disruption.

This might involve another advisor within the same firm or a clearly defined succession plan that has been discussed with you in advance. Ask the advisor about a contingency plan for your retirement, that way you’ll breathe a lot easier if something unforeseen happens.

16) How Will You Coordinate With My Other Advisors?

Successfully managing your retirement often involves working with a team of specialists who bring expertise in various areas of your financial plan. To create a well-rounded strategy, your financial advisor should collaborate closely with these professionals to ensure that every part of your financial plan is synchronized and supports your retirement goals. Here are two professionals your advisor will likely collaborate with:

Certified Public Accountants (CPAs): CPAs are crucial when it comes to managing taxes. They handle tax filings, develop strategies to minimize tax burdens, and ensure your retirement income is as tax-efficient as possible.

Estate Planning Attorneys: These professionals are instrumental in designing your estate plan. They can help craft wills, set up trusts, and establish powers of attorney. They work to ensure that your assets are allocated according to your wishes and that your family’s future is fully protected.

Please Note: Our advisors can work alongside your estate planning attorneys or CPAs to develop a comprehensive retirement strategy. If you don’t have these professionals in place, we can connect you with experienced experts from our vetted network to ensure that every aspect of your financial life is properly managed.

Special Considerations

17) What Is Your Experience Working with Clients in My Situation?

When choosing a financial advisor, it’s important to find someone who has handled cases similar to yours. Not every advisor is equipped to manage all financial situations, so it’s vital to ask about their experience with clients who share your specific needs.

An advisor familiar with your particular circumstances—whether that involves managing a substantial portfolio, recovering from divorce, or planning a business exit—can offer valuable insights. Their experience with clients in similar situations means they understand the unique challenges you face and can provide advice tailored to your specific goals.

Ask One of Our Advisors Your Questions About Retirement!

Choosing the right financial advisor is a decision that will have a long-lasting impact on your retirement. Taking the time to thoroughly question and assess potential advisors ensures that you find someone who can genuinely help you meet your retirement goals. From understanding their expertise and approach to retirement to knowing how they collaborate with other professionals, each question you ask helps build a retirement plan that suits your needs.

If you’re ready to start planning or have more questions, our team is here to guide you. We bring years of experience to the table, helping you navigate this important stage of life. Get in touch with us today to set up an introductory call, and let’s work together to create the retirement you’ve always envisioned.

Sources:

https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm