Question: I am 51 and recently retired from a company after 30 years. I realize my savings will need to last for a long time and want to be as careful as possible. I’ve been talking to a financial planner that a friend has been using for several years. What questions should I be asking, and how can I research his background?
Answer: You’re right to want to get good advice on managing your retirement nest egg. Current life expectancy tables suggest you’ll live another 30 years, which means you could spend as much time in retirement as you did working.
The slightest misstep in these early retirement years can have grave consequences for the rest of your life. Many retirees discover too late, for example, that they’ve been drawing down their savings too quickly. Current research indicates you shouldn’t withdraw more than about 4% of your savings in the first year of retirement, and perhaps even less when you’re looking at a 25- or 30-year retirement.
The structure of your portfolio is vitally important, as well. The more you have invested in stocks, the more you can potentially withdraw over time. But you also may suffer big swings in the value of your holdings, which can be scary for any investor but particularly for those whose incomes depend on their investing acumen.
An objective, qualified financial planner can help you navigate these dangerous waters, but one who’s notÂ educated,Â experienced and ethical can be a disaster. At a minimum, he should have a respected financial planning credential such as a CFP (Certified Financial Planner) or a PFS (Personal Financial Specialist). The planning organization that bestowed the credential can tell you about any disciplinary actions taken against him, and you should check with state and federal regulators as well. (The planner himself should be able to point you to the right regulatory bodies, since they vary by state and by the type and size of his practice.)
You’ll need to know how he’s compensated–fees that he collects from you, commissions that he collects from the investments he sells, or a combination of both. (Collecting commissions doesn’t make him a bad person, but could raise conflict of interest issues that you’ll want to consider.)
You’ll also want to know if he specializes in investors like you, or if his expertise lies elsewhere. Managing income in retirement is a whole different ball game from investing money for retirement, so you’ll want to make sure you’re not his guinea pig.