Retirement planning is a journey that generally takes decades to complete and most of us start out along the do-it-yourself path. More than likely, your first step was to enroll in an employer-provided plan such as a 401(k) or setting up an individual retirement account, also known as an IRA.
But at some point, most of us need to graduate from the DIY approach and seek advice from a retirement planning professional. How can you know when you’ve hit that point? Let’s dig deeper into five signs that you’re ready to move to the next phase of your journey.
Sign #1: Your Earnings Have Increased (and So Have Your Savings)
Most of us start out saving 10% of our paycheck. But when you begin to earn more, you may want to put more of that money toward your retirement. As you push your savings rate up to 20% or more, things might become more complicated – and this is when mistakes can happen.
Maybe you’ve been contributing to a Roth IRA for a number of years. But as your income grows do you know when you become ineligible to make contributions into a Roth IRA? Even traditional IRAs have rules for when the contributions are tax deductible. If you make a mistake here the penalty can be up to 6% of your contribution for every year it goes without being fixed.
A financial advisor can help you set short- and long-term goals and then guide you through which savings vehicles could work best for your situation.
Reason #2: You No Longer Have Enough Time
As you get older, life becomes more complicated. Maybe you have a growing family. Your job likely requires more time and energy. These days, you may no longer have the time it takes to really do a good job of managing your retirement portfolio.
This is an ideal time to call in the pros. You don’t have to give up all the control. A financial advisor is there to do precisely what their name implies … advise. At the end of the day, you call the shots. If they recommend something that doesn’t feel right to you, you can say no and ask for other options.
Reason #3: You’ve Let Your Emotions Take Over
It’s easy to let your emotions run the show when it’s your own money. Getting unbiased advice from a fiduciary can help you avoid making costly mistakes. When the market is volatile, do you fight the urge to pull all your money out of stocks? Or maybe your favorite podcaster is pushing some “sure-fire” investment. Who can you turn to for an unbiased take?
An advisor can help you see the big picture, providing guidance based on historical data and years of experience rather than the latest salacious headlines.
Reason #4: You Don’t Know What You Don’t Know
I’ve seen DIY investors who have the majority of their account value invested in just a handful of stocks. Maybe they bought Apple at $20 or predicted Netflix’s potential early on and their portfolio has done amazing over the last 10–15 years. But now their account value can swing depending on how one or two stocks do any given day.
These clients often feel strapped into the rollercoaster because they believe they’ll owe 20% in capital gains tax if they sell to start to diversify. This is a common misperception. In reality, capital gains has brackets similar to ordinary income – some gain may be taxed at 0%, some at 15%, and yes, some at 20%. (There’s even an often-missed additional 3.8% net investment income tax on certain gains over a certain amount.)
An advisor can help with a diversification plan to begin realizing those gains over time in an attempt to manage the capital gains rate. There are also strategies to help take advantage of capital losses to offset some of the capital gains.
Reason #5: You’re Getting Close to Retirement
You may have gotten yourself to this point with ease but the closer you get to retirement, the more advice you probably need. Are you financially ready for retirement? Or do you need to take advantage of catch-up contributions? Can you confidently decide which accounts to pull from first? Or when you need to start taking required minimum distributions? How can you remain tax efficient in retirement?
Many people turn to advisors at this point in their lives. It’s never too late to seek help from a professional. It takes years, even decades, of disciplined saving and investing to reach retirement. Making the transition to actually using your hard-earned savings can be difficult. It can be scary – painful even – to go from consciously saving everything you can to increase your account balances, to now start pulling from those accounts.
Every Great Quarterback Needs a Coach
Everyone’s situation is unique. It’s never too early or too late to seek advice. The key is knowing when it’s the right time for you to reach out for help. A financial advisor can help give you the confidence to efficiently, and sustainably spend what you’ve worked your entire life for. After all, isn’t that the reason you began saving in the first place?
Our fiduciary advisors will put your needs first. Contact us when you are ready for retirement advice.
This piece is not intended to provide specific legal, tax, or other professional advice. For a comprehensive review of your personal situation, always consult with a tax or legal advisor.
Converting from a traditional IRA to a Roth IRA is a taxable event.
A diversified portfolio does not assure a profit or protect against loss in a declining market.
The views stated are not necessarily the opinion of Cetera and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
Non-producing registered representative of Cetera Advisor Networks LLC, Member FINRA/SIPC
