10 Red Flags High-Net-Worth Retirees Should Watch for in a Financial Adviser
Retirees with both a pension and substantial savings should expect their adviser to focus on far more than — managing investments is only one piece of a comprehensive retirement plan.
When you have spent decades saving diligently, building wealth and earning a pension, you have accomplished something relatively few Americans have. But there is a catch: The more you have, the more complicated retirement planning can become.
A retiree with a pension and $1 million, $2 million or even $5 million saved faces very different planning challenges than someone with a smaller nest egg and no pension.
Taxes, required minimum distributions (RMDs), Medicare premiums, estate planning and income strategies can all become significantly more important.
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Yet many financial advisers primarily focus on investment management. They may do a great job managing a portfolio, but managing investments is only one piece of a comprehensive retirement plan.
If you have a pension and $1 million or more saved for retirement, I wrote a book just for you — you can request it for free).
As a CERTIFIED FINANCIAL PLANNER® professional and the founder and CEO of Peak Retirement Planning, I'm highlighting 10 red flags to watch for when evaluating your financial adviser.
You can also watch this video about the topic:
1. Your adviser immediately tells you not to do Roth conversions
I'm not saying everyone should do a Roth conversion. They shouldn't. But if you have a pension and significant tax-deferred savings, I would be skeptical of an adviser who tells you that Roth conversions don't make sense without first running the numbers.
Many people enter retirement believing their tax bracket will automatically fall. For high-income retirees, that isn't necessarily true.
Consider someone with a $75,000 pension, Social Security benefits and several million dollars in an IRA. Eventually, RMDs could add a substantial amount of taxable income on top of the pension and Social Security.
A Roth conversion can be one way to address that future tax liability. You pay taxes on the amount converted today, potentially at lower rates, and move those assets into a Roth account where qualified withdrawals can be tax-free.
The important part isn't whether your adviser is "pro-Roth." It's whether your adviser has actually run the numbers.
A good adviser should be able to show you the potential tax consequences of converting different amounts and explain when a conversion makes sense and when it doesn't.
2. Your adviser doesn't have an RMD strategy
RMDs can become a major issue for high-net-worth retirees. For someone with $500,000 in tax-deferred retirement accounts, an RMD of roughly 4% could initially mean around $20,000 of taxable income.
But consider someone with $3 million. A 4% distribution would be about $120,000. And that's before adding a pension, Social Security or other income.
The problem can become even more pronounced as you age. RMD percentages increase over time, meaning a retiree could eventually be forced to withdraw substantially more from a growing retirement account.
This can result in higher income taxes, higher Medicare premiums and less flexibility in managing your income.
Your adviser should be modeling your future RMDs, not simply telling you to "wait until you're required to take them."
3. Your adviser doesn't talk about IRMAA
If your adviser has never mentioned IRMAA, I would ask why. IRMAA, the income-related monthly adjustment amount, is an additional charge that higher-income Medicare beneficiaries can pay on top of their standard Medicare Part B and Part D premiums. For high-income retirees, this is an important part of tax and income planning.
A Roth conversion, capital gains, IRA withdrawal or other income can potentially push you into a higher Medicare premium tier. Since these thresholds can be relatively narrow, a seemingly small difference in income can sometimes have an outsized effect.
I've seen situations where retirees missed an opportunity to manage their income and ended up paying substantially more for Medicare, which is why I believe Medicare planning shouldn't be treated as an afterthought.
Your adviser should understand how your retirement income strategy interacts with your Medicare premiums.
4. Your adviser immediately recommends an income annuity
An income annuity isn't inherently bad. In the right situation, it can be a useful tool, but if you already have a substantial pension, I would question why someone is automatically recommending another source of guaranteed lifetime income.
One of the reasons people buy annuities is to create a predictable stream of income and reduce the risk of running out of money. But if you already have a pension providing lifetime income, you may have already addressed a significant portion of that risk.
An annuity can also come with costs, limitations, reduced liquidity and potentially less upside compared with other investments. I've seen situations where retirees were advised to put a very large percentage of their assets into an income annuity even though they already had a substantial pension.
The right question isn't, "Are annuities good or bad?" It's, "What role does guaranteed income already play in your retirement plan, and what problem would another annuity solve?"
5. Your adviser wants to protect half or more of your portfolio
The more money you have, the less you may need to rely on your portfolio for your basic lifestyle. That's an important concept for high-net-worth retirees to understand.
Imagine you have $3 million saved, a $50,000 pension and $50,000 in Social Security. That's $100,000 of relatively dependable annual income before taking anything from your investment portfolio. If you need $150,000 to maintain your lifestyle, you may need only $50,000 from your portfolio, which is less than a 2% withdrawal rate on $3 million.
In that situation, you may not need to put 50% or more of your portfolio into highly conservative investments. You could potentially set aside enough assets to cover several years of portfolio withdrawals while allowing the rest to remain invested for longer-term growth.
This isn't an argument for taking excessive risk. Some retirees genuinely value safety over growth, and that's perfectly reasonable, but your adviser should understand that your pension itself is part of your retirement safety net.
If you have a pension covering a substantial portion of your expenses, treating your pension and half of your investment portfolio as separate "protection" buckets may result in you being far more conservative than you actually need to be.
6. Your adviser says they do tax planning, but they don't help with tax preparation
There's a big difference between saying you do tax planning and actually doing it. I became even more convinced of this after adding a tax team to our firm.
When you have the ability to coordinate tax planning throughout the year with the actual preparation of a client's tax return, you can see whether the strategies you recommended were actually implemented and identify more opportunities for the next year.
Without that coordination, tax planning can become a conversation that happens once a year or doesn't happen at all. For high-net-worth retirees, tax planning shouldn't be limited to asking, "How much did you owe last year?" It should involve questions such as:
- Should you do a Roth conversion?
- How much should you convert?
- How will an IRA withdrawal affect your tax bracket?
- How will your income affect Medicare premiums?
- Should you realize capital gains this year?
- Are there charitable strategies that could reduce taxable income?
- How will today's decisions affect your future RMDs?
If your adviser says they do tax planning, ask them to show you what that actually means.
7. Your adviser doesn't have the CFP® certification
A designation doesn't automatically make someone a great adviser, but when I'm trusting someone with my life savings, I want to know they've demonstrated a broad understanding of financial planning, not just investments.
That's one reason I place a high value on the CFP® certification, which covers areas such as retirement planning, tax planning, estate planning, insurance and investments.
At Peak Retirement Planning, we require our advisers to have the CFP® certification or to be working toward it.
Again, this isn't to say that someone without the designation can't be a great adviser, but when you're evaluating someone who will be responsible for coordinating the many moving pieces of a high-net-worth retirement, comprehensive financial planning knowledge matters.
8. Your adviser doesn't help coordinate your estate plan
The more wealth you accumulate, the more important estate planning becomes. Yet I see too many situations where an adviser essentially says, "Go find an estate planning attorney," and leaves it there.
Your adviser should help facilitate the plan. That includes making sure your accounts are properly titled, beneficiaries are up to date, and trusts are properly funded when appropriate.
A beautiful estate planning binder doesn't accomplish much if the underlying plan isn't actually implemented, and high-net-worth retirees have additional issues to consider:
- What happens to your tax-deferred accounts when you die?
- How will your heirs be taxed?
- What happens to your spouse's tax situation?
- How will your assets be distributed among your children?
9. Your adviser doesn't help with Medicare and Social Security
If you're approaching 65, you should be thinking about your Medicare options and how your healthcare costs fit into your retirement plan, and if you retire before 65, you need a strategy for health insurance until Medicare begins.
This becomes particularly important for people who retire in their 50s or early 60s. You shouldn't have to coordinate all of these decisions independently. Your Social Security, Medicare, pension, investments and taxes should work together as one retirement plan.
10. Your adviser doesn't plan for early retirement
If your adviser primarily works with people who retire around the traditional retirement age, they may not have much experience planning for someone who wants to retire in their 50s or early 60s.
High-net-worth retirees with pensions are often in a unique position. They may have the ability to leave work earlier because they have three things many retirees don't: A pension, significant investment assets and the ability to generate income without immediately relying on Social Security.
This creates opportunities. For example, someone might retire at 55, use investment assets for income for several years, delay Social Security and strategically execute Roth conversions during a period when their taxable income is relatively low.
This can look very different from simply working until 67, claiming Social Security and then taking RMDs later.
And if you have a pension, the value of that pension needs to be incorporated into the entire equation. A $50,000 annual pension paid for 20 years represents $1 million of income over that period, before considering any cost-of-living adjustments.
That's a significant financial asset that needs to be treated as part of the retirement plan.
What should a high-net-worth retiree look for in an adviser?
If you have a pension and substantial retirement savings, I'd want my adviser to be asking questions such as:
- What will my tax bracket look like in retirement?
- Should I do Roth conversions?
- How large could my RMDs become?
- How will my income affect Medicare premiums?
- When should I claim Social Security?
- How much of my portfolio actually needs to be protected?
- How should my pension affect my investment strategy?
- How should I plan for my spouse if I pass away?
- What happens to my retirement accounts when I die?
- How can I minimize taxes for my heirs?
- Can I retire earlier than I think?
These questions are much bigger than "How is my portfolio performing?" Your adviser should be planning for the retirement you'll actually have.
I've spent much of my career working with what I call the 2% Club: People who have a pension and $1 million or more saved for retirement. This group is unusual. You've done the hard work of saving, you've earned a pension, and you've accumulated significant wealth.
But that success creates its own set of planning challenges. And if your current adviser can't answer the above questions, it may be time to start asking some harder ones.
Related Content
- Want to Hire a Financial Planning Firm? Five Questions to Ask
- Is Your Financial Adviser Doing a Good Job for You?
- A 7-Point Retirement Checklist for People Retiring With a Pension
- 8 Retirement Tax Strategies Your CPA Won't Tell You
- When Is a Roth Conversion a Bad Idea? 6 Situations Retirees Should Consider Carefully
