You Don’t Need a Financial Planner … Unless …

There are plenty of times when people can handle their investments, taxes and retirement planning themselves. Here's who can go it alone, and who should seek some advice. Which category do you fit into?

(Image credit: PongsakornJun)

In practically all aspects of life, there are things we can do ourselves and others we can’t.

If you cut your finger slightly, you grab a bandage; but if you need stitches, you find a doctor. You probably can put air in your car’s tires and maybe even change your oil, but when a car keeps dying at stop signs, most people go to a mechanic.

The same holds true for handling your finances. It might seem odd for a financial professional to tell you this, but under some circumstances, you really can go it alone and probably turn out fine. In other instances, the do-it-yourself approach could be a mistake.

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The trick is figuring out which is which.

When you’re young — in your 20s, 30s or 40s — you may not need help. If you’re contributing to your 401(k) at work and/or putting money into a Roth IRA and you’re smart about spending and taxes, you probably can manage your money without professional help.

If you want to buy some investments on your own — as long as you have the time and disposition to endure the market’s ups and downs — that’s even doable as a DIYer.

Frankly, in the first few decades of adulthood, unless you have tons of money to manage or other special circumstances, you can justifiably sidestep the extra costs of hiring a financial professional.

For most people, problems, questions and opportunities are more likely to crop up as their goals change from accumulating money to protecting it. And that usually happens five to 10 years before retirement.

So, how do you know when the DIY approach remains a sound option and when it’s time for help? Here are some things to watch for:

Tax planning

There’s a huge difference between tax preparation, trying to minimize your income tax each year as you file, and tax planning, which takes a proactive look at long-range strategies. An adviser can look at whether a Roth conversion would better diversify your income streams, help find tax-harvesting opportunities to offset taxes on gains and income, and compare retirement plans and their benefits.

For example, I recently met with a couple retiring at age 60. Their plan was to live on their pension and delay filing for Social Security until they were 70 to maximize their benefits. It was a good plan and would keep them within the 15% tax bracket, but my concern was what their taxes would look like after age 70½, when they started their Social Security payments and also had to take required minimum distributions from their IRAs. As an alternative, we talked about doing Roth conversions that would take them to the top of the 25% tax bracket for those 10 years between 60 and 70 but would keep them out of an even higher tax bracket later in life and from having to pay taxes on their Social Security income. It turned out that over time, it would save them thousands of dollars annually for the rest of their lives, ultimately giving them a tax-free retirement.

Now, not everyone has tax problems such as these. However, if you are maxing out your tax-advantaged savings vehicles (e.g., 401(k)s, HSAs, 529s, etc.), own a successful business, have a substantial amount of taxable investment accounts, have the majority of your life savings in tax-deferred retirement accounts, etc., then it may be worth working with a professional who can assist in reducing your tax bill.

Income planning

When you don’t have regular paychecks coming in anymore, you must create your own income. An adviser can help retirees avoid ill-timed investment losses that could devastate their retirement plans, offer guaranteed income options to those who want reliable payments, and discuss the best 401(k) and IRA distribution choices.

An adviser also can offer advice on Social Security income options that DIYers often don’t know about. For example, a widow might not know she could file for survivor’s benefits at age 60, or a divorced woman might not realize she could file for spousal benefits while suspending her own Social Security payments. If guaranteed income similar to your parents’ pension is what you seek, you won’t be able to attain it without working with an adviser. When it comes to retirement, there isn’t anything more important than income, because without income, you don’t have retirement. A rock-solid income strategy can provide you with the security you need to spend during retirement.

Estate planning

An adviser can review any documents and plans you already have in place, double-check your beneficiaries to be sure the money goes to the right people when you die, refer you to an estate planning attorney and even help you find options that will benefit you as you look out for your favorite charities.

I know of one couple who had almost their entire life savings — 80% — invested in his employer’s stock. They lived well off the dividends but were anxious about what could happen if the company faltered or failed. Still, they didn’t want to sell; the cost basis was so low, they would have taken a huge hit from taxes. They didn’t have any kids and planned to leave their money to their church and charities when they died. The answer for them was to move this highly appreciated stock into a charitable trust. Once it was in the trust, they could diversify without any tax consequences and they could take the charitable deduction they never would have seen otherwise. It not only saved them on taxes but greatly reduced the risks to their retirement income that had caused anxiety for years.

Health care planning

Many DIYers have no idea that few of their long-term care needs will be covered by Medicare, or they only know about costly long-term care insurance. There are many other options, and a knowledgeable professional can find the best fit for you. You may even be able to qualify for coverage you didn’t think you could.

For instance, I had a gentleman who had undergone major heart surgery, as well as multiple forms of cancer over the years but otherwise was in great health. He had previously attempted to qualify for traditional long-term care insurance but was denied coverage due to medical history. We were able to get him the coverage he wanted through the rearranging of assets and the use of hybrid long-term care products all while avoiding the typically sky-high premiums he could have seen given his age and health history.

Investment planning

This issue many DIYers have with investing on their own is understanding the degree of risk they are taking, committing the time it takes to manage an investment portfolio responsibly, minimizing their ongoing fees and expenses, and maintaining a cool head during volatile times. In addition, your investment strategy should match your overall financial plan and long-term goals. Too often, self-investing leads to over-concentrating on the tools being utilized rather than the ultimate goal you are trying to achieve.

Your goal may be financial independence or avoiding being a burden on your family, but you get so wrapped up in the next big stock or perfect mutual fund that these things get put on a shelf, resulting in an unfulfilled retirement. An adviser can help you crystalize your goals, identify the appropriate strategies to accomplish those goals and identify the most efficient tools to get you to the end result you’re looking for. You may also find the investments you are using on your own are going to cost you as much as or more than working with a financial planner who can bring more to the table than just picking the latest stock or trendiest investment on Wall Street.

As you can see in almost every one of the above instances, goals have shifted, becoming more about protecting your life savings against any number of risks, rather than growing it at all costs. You may be willing and able to go it alone for years, but at some point, you’ll welcome the experience and expertise a financial professional can offer.

Kim Franke-Folstad contributed to this article.


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Casey B. Weade, CFP®
President, Howard Bailey Financial Inc.

Casey B. Weade is president of Howard Bailey Financial Inc. in Indiana and author of the book "The Purpose-Based Retirement." Weade, a financial professional, hosts The Purpose-Based Retirement radio and TV shows in the Fort Wayne area. He earned the prestigious Certified Financial Planner™ (CFP®) certification in addition to being a Retirement Income Certified Professional® (RICP®). He is also an Investment Adviser Representative (IAR), as well as life, accident and health insurance licensed and Long-Term Care Certified.