Increasingly, retirees are turning to financial advisers for the first time to help navigate an array of issues as they step out of the workforce.
Nearly half want guidance on saving and investing after leaving their workplace retirement plan, according to a report published by the Employee Benefit Research Institute (EBRI).
Roughly a third want advice for what to do with the money in their former workplace plan, while nearly 3 in 10 want a withdrawal strategy that turns savings into retirement income. Others seek help with taxes, long-term care planning, debt reduction, or estate planning.
“Going from a dependable regular income to no income stream at all can be terrifying,” said Andrea Billquist, a financial planner in College Park, Texas. “With this new retirement reality, many quickly realize that they have more questions than answers and identify that they would like advice and support to make the right steps.”
Yahoo Finance reached out to financial advisers about what questions are top of mind for these former do-it-yourself folks.
5 common questions retirees ask financial advisers
Do I need to move my retirement account from my employer’s plan?
Not always, but you may have a better selection of investments in a self-directed individual retirement account (IRA) you open at a financial services company like Vanguard, Fidelity, or T. Rowe Price.
Rolling over a 401(k) can be a strategic move to consolidate retirement savings. Most advisers will help you set up a direct rollover, transferring the funds directly from the old 401(k) or employer plan to an IRA, avoiding taxes and penalties.
“I walk people through rolling it into an IRA, leaving it in place, or splitting the difference, based on the actual fund lineup, not a blanket rule,” said Jeff Judge, a financial planner based in Forest Hills, Md.
Will my savings last?
“Many retirees and near-retirees reach out for the first time because they’re trying to answer one core question: ‘Am I going to be OK?'” said Brenna Baucum, a financial planner in Salem, Ore.
“They are looking for clarity. They want to understand what they can spend, what risks they need to plan for, and whether their money can support the life they want to live.”
A financial adviser would likely start by looking holistically at your total assets, such as retirement accounts, savings, outside investments, and real estate, including the value of your home.
Then they’d review your monthly budget and outgoing expenses, followed by your long- and short-term needs and goals.
Do you expect to travel initially? How’s your health?
Considering all those factors allows a picture to emerge that can help the adviser create a plan to make your savings last and, importantly, recommend moves to continue to invest outside of your retirement accounts.
How much money can I pull out each year?
Tax-efficient withdrawal strategies are one of the biggest reasons new retirees reach out, according to Flavio Landivar, a financial planner in Coral Gables, Fla.
“One of the first questions new retirees ask themselves is, how am I going to actually replace my paycheck once it stops with the buckets of money I have accumulated over my lifetime?”
Most retirees worry about withdrawing money and hold back on spending, even when it might not be necessary. Nonetheless, the 4% rule is still the overall recommendation from financial advisers. That means you withdraw roughly 4% of your savings in the first year of retirement, and take the same amount, adjusted for inflation, every year after that. Some planners push that up to closer to 5%, depending on the client’s personal situation.
They also typically suggest what investments to pull from, depending on the client’s tax situation, while moving some funds into a more liquid cash account, such as a money market or high-yield savings account.
Retirees are typically encouraged to have at least a year’s worth of living expenses in cash accounts to ride out market dips without having to pull from those investments.
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When should I start my Social Security checks?
While most of his clients have done an admirable job building their nest egg, Michael E. DeMassa, a financial planner in Sarasota, Fla., is often asked for advice on the best time to start getting that government check.
“The conversation almost always starts with ‘when should I start Social Security?’
One of the biggest mistakes people make when it comes to Social Security is claiming too early at a much lower benefit. Holding off on tapping your benefits until age 70 —rather than at your full retirement age, which ranges from 66 to 67 — lets you earn delayed retirement credits. Those add roughly an 8%-per-year annual increase in your benefit for each year until you hit 70, when the credits stop accruing.
Should I do a Roth conversion?
A Roth conversion is when you shift some of your savings from a traditional IRA or other pretax retirement account to a Roth IRA. You pay income taxes on that amount since it’s income to you, but then the money grows tax-free in the Roth and you pay no taxes when you take money out.
The idea is to convert just enough funds from your traditional 401(k) or IRA into a Roth to keep you in the lowest possible tax bracket.
You typically must wait five years from the date of a Roth conversion to withdraw the converted funds penalty-free if you’re under 59 ½. If you’re already 59 ½, you can withdraw converted funds anytime without a penalty.
One caveat: Roth conversions will increase your adjusted gross income, which can affect Medicare premiums and Social Security taxation.
“These decisions are highly interconnected. A change in one area can have a ripple effect on taxes, lifetime income, Medicare premiums, and ultimately how long a portfolio may last,” DeMassa said.
Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist and the author of 14 books, including “Retirement Bites: A Gen X Guide to Securing Your Financial Future,” “In Control at 50+: How to Succeed in the New World of Work,” and “Never Too Old to Get Rich.” Follow her on Bluesky and X. You can reach her at kerry.hannon@yahooinc.com
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