3 Reasons You Should Speak to a Financial Advisor If You’re Planning on Retiring in the Next 5 Years

An AARP survey from January 2024 found that 20% of Americans ages 50+ have no retirement savings. Many also view their financial standing as “fair” or “poor.” With retirement so close, now is the perfect time to seek help getting back on track.

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But what if you’ve done a good job planning and have already saved a substantial amount in your retirement account? Does this mean you don’t need anyone to help you the rest of the way? That couldn’t be further from the truth.

If you plan to retire in the next five years, you’ve probably spent decades with the mindset of accumulating as much savings as possible. Early in your career, you probably took on a lot of risk with high-growth investments and then gradually got more conservative over the years.

But now that you’re getting ready for retirement, it’s time to switch your mindset away from accumulation and on to preservation. This can be a huge adjustment for some people. So much so that it makes sense to hire a financial advisor to help you along the way.

Keep reading for more reasons you should work with a financial advisor if you plan to retire in the next five years.

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Income Planning

You’ve spent years saving money, but once you retire, you’ll need to use that savings efficiently to pay your monthly bills. To do this, you need to create an income plan.

“Building a large nest egg is very different from building up a well-balanced income plan to replace your current paycheck(s),” said Stephen Kates, a certified financial planner (CFP) and the principal financial analyst for RetireGuide.

“Retirees need more than just a percentage to withdraw; they need to build layers of redundancy that can withstand the ups and downs of both their expenses and the market.”

There is no right or wrong way to build an income plan for retirement. It really all comes down to what you want to do in retirement and the risk you’re still willing to take.

However, as you construct your plan, you must remember that you’ll have two different sources of income to work with.

• Regular sources: Your regular income sources in retirement will consist of Social Security, Pensions and income annuities. With these sources of income, you know exactly what you’ll receive each month. Ideally, you can use these sources of income to pay for many of your fixed expenses like housing, food and utilities.

• Variable sources: Variable sources of income will be things like your IRA, employer-sponsored retirement plans and taxable savings accounts. You are in charge of managing these accounts and deciding how much to withdraw each year.

Kates added that when you’re working with your financial advisor to build an income plan, it’s important to ask them the following questions:

1. How much should I put into an emergency fund by the time I enter retirement?

2. How can I adjust my portfolio to create predictable income flexible enough in early retirement but can grow over time to combat inflation?

3. If my essential (mandatory) expenses are X, how can I guarantee that I will never have less income than that?

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Legacy or Estate Planning

Working with a financial advisor just before reaching retirement is also important so you can establish a plan for transferring your assets after you die. Because there is a lot to consider, especially with an ever-changing tax landscape, having someone in your corner who understands how to pass along your assets best will be important.

“Many retirees have an inkling of what they want for their heirs,” said Kates. “Some want to pass on assets, ideas or property, while others want to spend it all before they go.

“Regardless of what you decide, if you don’t have a plan to accomplish that and protect that dream, then you may see it melt away due to higher-than-expected expenses, healthcare costs or mismanagement.”

Kates suggested you ask your financial advisor the following questions when going through the estate planning process:

1. Is giving my heirs $X realistic?

2. What can I do to ensure I can give $X to my heirs?

3. What should I do to make the process of dealing with my future death orderly and avoid probate?

Risk Tolerance

Financial markets can be volatile. If your portfolio is full of risky investments and you’re close to retirement, this could have a significant impact on your future. Working with a financial advisor to plan how much risk you’re willing to assume during retirement will be important to ensure your nest egg can last.

“Our recent market tumble and subsequent investor panic demonstrates that many people have been overinvesting in risky assets and were wholly unprepared for a sharp pullback,” said Kates.

“This is a wakeup call for soon-to-be retirees. When you are retired, you cannot take risky steps with your future income.”

However, it’s important to find a good balance. Being too risk-adverse can also have negative effects because your income may not outpace inflation. Working with a financial advisor will provide you with a good understanding of how to position your portfolio in retirement.

Kates recommended asking your financial advisor the following questions to ensure you’re taking on the right amount of risk:

1. How could I shore up my portfolio and income strategy to avoid sequence of returns risk?

2. How susceptible is my portfolio to overconcentration in certain companies, industries and sectors?

3. How can I build a more rules-based approach to managing my portfolio, so I am not distracted by unproductive trends or future bubbles?

Many believe financial advisors are here to help you build a portfolio big enough to live a comfortable retirement. While this is true, they also play a large part in the decisions you make after you retire. By working with a financial advisor before and after retirement, you can help yourself live a comfortable retirement and ensure your assets are seamlessly transferred to your heirs.

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