Are Your Financial Plan and Adviser the Right Fit for You Now?

Whether it’s clothes, hobbies or interests, over the course of your life, you outgrow things. At some point, the same will be true of your financial plan. You’ll reach an age when it no longer fits, and the focus of the plan needs to shift because of changing investment strategies in retirement.

This shift happens because your needs are different when you are younger than when you are nearing or entering retirement. A younger you is in the accumulation stage of retirement planning, stashing away as much money as possible and investing it for big gains. Later in life, as priorities and needs change, you enter the distribution stage, where those savings become your source of income. At this point, your investment goal becomes preservation, to protect what you have for the remainder of your years.

Each financial stage of your life is important, however, because each one involves different goals, and they call for different investment strategies, they may also call for a different financial professional to help you navigate the changes.

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Let’s explore why.

Journeying Through the Accumulation Stage

At this point, retirement lies in the distant future, offering you the flexibility to be aggressive with your investments. After all, time is on your side. Have you ever watched a football game and heard the announcer refer to the clock as a team’s friend or a team’s enemy? The same applies to retirement planning. When you are younger, the clock is an ally. If you are 35, you can worry less about market drops than a 65-year-old, because you still have years to recover from the potential blow to your portfolio.

Younger investors can even take advantage of market lows by purchasing more stocks at a cheaper price. A bear market may be a good time to convert a traditional IRA to a Roth IRA. You pay taxes when you make the Roth conversion, but when the recovery happens, that money will grow tax free.

Another way to combat market volatility during the accumulation stage is through dollar-cost averaging with automatic stock purchases.

Here’s how it works: You invest the same amount of money in a target security at regular intervals over a certain period of time. The logic behind this is that you will lower your average cost per share and reduce the impact a volatile market might have on your portfolio. Through this approach, since the trades are automatic, you aren’t trying to time the market.

The Paycheck Advantage

One final – but extremely important – advantage of the accumulation stage is the ever-popular paycheck! By using this income source to pay your bills and living expenses, you won’t need to touch the balance growing in your retirement portfolio.

Knowing this, your financial professional may point you toward more aggressive investments, even though your personal risk tolerance can come into play. Your adviser knows, as his or her advice should indicate, that this is the best time of life to go on the offensive with your investments.

As your work years evolve into your golden years, your paycheck earnings become less of a factor and your financial picture takes on a new look.

As your needs and situation change, so must your strategies. Time is no longer so friendly, and a market downturn can prove devastating since you no longer have the luxury of years to recover. Furthermore, your need for account withdrawals can’t always be timed with the markets and can create a more difficult situation from which to recover. As you move into this distribution stage of your financial plan, it’s a good idea to rebalance your portfolio to make sure you’re not weighted too heavily on risky investments.

Creating a Reliable Income Plan

That paycheck you relied on in your working years also will be gone in retirement, so you will need to create an income plan. The first step to doing that is to add up your monthly bills and other expenses. That will give you an idea of how much income you need. (Some people suggest retirees need 80% of their preretirement income, but I’m unconvinced that a 20% pay cut will allow you to continue your lifestyle.)

Throughout retirement, you don’t want just income, you want the protection of guaranteed income. The question is: Where will it come from? One source is Social Security, but unfortunately, too many people claim their Social Security benefit too early and leave a lot of money on the table. You can take Social Security as early as 62, or you can wait as late as 70, and the difference in the amount you receive can be enormous. Your financial professional can help you figure out the best time for you to claim your benefit.

Other sources of guaranteed income in retirement can be pensions (although fewer people have those these days) and annuities, which are insurance products you purchase that can work like pensions.

As you can see, the distribution stage requires an entirely different mindset than the accumulation stage. This is just one reason why your financial adviser needs to be the right fit for your current situation. There are various ways to grow your savings and take risks in the accumulation stage of your life.

However, the stakes are higher during retirement, and you want to make sure your adviser is someone with a greater understanding of the distribution stage and how to best address your investment goals. Such a person will be better equipped to help you with tax-efficient strategies for tapping into your retirement funds, long-term care strategies and other issues.

When’s a Good Time to Evaluate Your Needs?

The best time to revisit whether you are with the right adviser is during the transition period between accumulation and distribution. For most, this ends up being between ages 55 and 60.

When choosing a financial adviser, you should seek recommendations from people you trust who are also in the same phase as you or are already retired. Do your research to find an adviser who specializes in developing retirement strategies. Check their background and their experience. Make sure you take the time to interview advisers and find out what sets them apart from others.

But don’t forget it’s a two-way street, and they need to interview you to ensure they can best suit your needs or make a referral to someone who may be a better fit.

Distribution advisers who assist you into and through retirement should be focused on creating a plan that addresses your income, taxes, health care, estate planning and, of course, your investments.

Finding an adviser who brings multiple years of experience to the table is essential, but the most important thing is to determine whether you are comfortable with their personal or professional style. Do you trust them to manage your money and see them as a partner for your financial future?

You worked hard to save for retirement. This is the perfect time to make sure your money is now working for you and that it lasts as long as you need it!

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.