It's good you are looking to get professional advice on this, because there are several factors you need to consider: mainly income and taxes in your retirement years. As a CPA and retirement tax adviser, I did exactly this type of planning for many years, so I know what's involved here and am happy to offer my assistance to you.
Your situation is common, since it involves Social Security benefits timing to be coordinated with your overall retirement plan. There is no such thing as a plan that is perfect for everyone. It cannot be a cookie-cutter plan. It must be personal and customized to you.
As you are probably aware, there is no shortage of professional advisers, but not all of them have expertise in all areas. Your job is to find an adviser that has expertise in both Social Security claiming strategies and retirement-distribution planning. Start with referrals from family, friends or contacts who have confidence in their advisers, and you should see at least three candidates so you get a feel of where you might be comfortable. If you can't get referrals from friends, consider the National Association of Personal Financial Advisors or the Financial Planning Association, two trade groups that have search engines that will help you find advisers in your area.
Now it's time to interview the adviser. Sit down and talk to the candidates you've chosen to work with you. Do you like them? Ideally, this will be a long-term relationship, not just a quick consult, and you have to feel that your adviser will listen to you and understand what your top concerns are.
Another question to ask: What kind of access will you have for questions after a meeting?
There are always follow-up questions that keep you up at night, and you should not have to wait unreasonably long for answers. I call these “the 3 a.m. questions.”
When I worked directly with people like you (which I did for over 40 years), there were usually so many items we covered at a meeting that my clients would tell me they woke up in the middle of the night and thought, What about this? What did he say again? So there will always be follow-up. You'll need to nail down who will your key point person be that will be familiar with your personal situation, so you don't have to start from the beginning each time.
It's about building a long-term relationship, and you should involve your family — say, your children who will be your heirs — so they are looped in (only if you wish, but I find it to be a good idea). You might also run some of this advice by your accountant or tax adviser, if you have one, because withdrawing from a retirement account always involves taxes, and you'll want to know how much of your retirement income is actually spendable — after taxes. You cannot spend what you don't keep.
Finally, you need to know how much an adviser will cost you. Some charge based on a percentage of your assets; others charge commissions on the products they sell. Yet others charge a combination of the two, or an hourly rate. Ask how much a plan will cost, and how much annual monitoring will, too. In general, it's best to go with a planner who doesn't base his recommendations on the fee he gets for selling them.
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Not just investing
Choosing a financial adviser is about more than how to invest money. It's about when to withdraw money and how to keep taxes as low as possible while providing you the income you'll need in retirement.
- We have created Ed Slott's Elite IRA Advisor Group, which can help you find an advisor.
- The American Institute of Certified Public Accountants (AICPA) will help you find CPAs who are trained in financial planning, a group known as Personal Financial Specialists (PFS).
- You can also find financial planners with tax expertise via the National Association of Personal Financial Advisors.
Most financial advisers will likely be able to analyze your financial information and provide you with the optimum timing for claiming your Social Security benefits. Most advisers have computer programs for this that are very good. They can instantly provide you with results of various claiming options.
For example, most people do better by not claiming benefits until age 70, to lock in the largest monthly check for life; but some people need funds earlier, especially now in the COVID era — where you cannot take long-term financial security for granted.
You also mentioned you had a pension, so that can be figured into the mix. You didn't say anything about other retirement savings, like IRAs or 401(k) funds, but assuming you have some of these, a conversation now about Roth IRA conversions would be something you should have. Tax rates are very low now, and I believe most people should take advantage of the ability to convert a traditional IRA into a Roth. I think people should start positioning retirement funds in tax-free Roth IRAs (via Roth IRA conversions) as a hedge against the possibility of future higher tax rates. Higher future taxes mean less spending power in retirement when the paychecks stop. That's when you'll need more certainty about how much of your savings you can keep and spend.
This is why a good financial adviser should have knowledge about the taxation of retirement savings or have access to others who do. Most retirement funds like IRAs and 401(k)s are tax-deferred, not tax-free. These funds have not been taxed yet, but they will be at some future time (and possibly at higher tax rates), so you need an adviser who can help you plan for this now.
The bottom line here is that planning is multifaceted. You'll need to be comfortable with the adviser you choose. By comfortable I mean having a relationship that will last. Your plan will change as events in your life change. Tax laws will always be changing. Your advisers should be people who keep up with the latest changes, so they can advise you on possible tweaks to your current plan. You are wise to get this process started now. You are at a perfect age to begin since you are a few years ahead of retirement. Good luck to you!
Ed Slott, CPA, is one of the nation's top experts on retirement plans. For more than 30 years, he has educated both consumers and financial advisors on retirement tax-saving strategies. Most recently, he published Ed Slott's Retirement Decisions Guide: 2020 Edition and is the host of several popular public television specials, including his latest, Retire Safe & Secure! With Ed Slott. Visit www.IRAHelp.com to learn more.