How to Choose a Financial Advisor for Retirement

Hiring a retirement advisor might be a good idea if you're within 10 years of leaving work

A retirement financial advisor can help you asses how much you should be saving and where you should invest your funds. monkeybusinessimages/iStock/Getty Images Plus

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• It might be a good idea to hire a retirement advisor if you're within 10 years of retiring.
• A retirement advisor can help you refine your goals, develop an income drawdown strategy, and more.
• Above all, look for a retirement advisor who is a fiduciary. They are held to high ethical and legal standards that ensure your needs are met before their own.

Retirement advisors are financial professionals who specialize in — you guessed it — retirement planning. Life-changing events — like getting married, having a baby, or paying down debt — often call for the assistance of a financial advisor, and retiring is no different. 

Retirement advisors have extensive knowledge of investment markets, workplace retirement plans, pensions, and Social Security. Advisors are equipped to help you craft a strategy that makes the most of your nest egg.

What is a financial advisor? 

Financial planning advisors are money-wise professionals who help clients reach their financial goals. Through expert advice, clients can receive guidance on a variety of financial situations, including building and protecting wealth. Advisors may also educate clients about financial products, tax advantages, and insurance options.

It's important to note that not all financial advisors are the same. There are three main types of financial advisors: 

• Traditional financial advisors: Advisors that can provide personalized advice and product recommendations based on a client's needs and goals. These advisors are often Certified Financial Planners (CFPs), Registered Investment Advisors (RIAs), brokers, and wealth managers.
• Online financial planning services: Often automated services that assist folks in budgeting, portfolio building, investing, and goal setting. 
• Robo-advisors: Digital advisors that give advice — usually investment recommendations — based on client information and computer algorithms. The best robo-advisors offer low fees, various portfolio options, account flexibility, and accessible customer service. 

The services offered by your financial advisor can vary based on the type of advisor you're seeing. The most common services provided by advisors and planners are investing, mortgages, budgeting, tax and estate planning, portfolio building, insurance, and retirement. 

Should I hire a retirement advisor?

If the most important financial goal on your horizon is retirement, you could benefit from working with an advisor who will focus on that singular aspect of your financial plan. Likewise, if you're overwhelmed or confused by retirement planning, an advisor can help you clarify your savings target, organize, and stay on track.

You might consider working with a retirement plan advisor if you're within 10 years of leaving full-time work for good, but you probably don't need one yet if you're in your 20s or 30s and are closer to starting a college fund or buying a home than retiring.

Here's what a retirement financial advisor could help with:

• Calculating exactly how much money you need in your retirement accounts on the day you leave work to meet your annual income needs
• Explaining the pros and cons of different types of retirement accounts or products and which are best for your needs
• Selecting an appropriate mix of stocks and bonds for your risk tolerance and time horizon
• Rebalancing your investments when the market changes
• Claiming Social Security
• Developing a plan for drawing an income in retirement
• Reevaluating your goals, if needed
• Minimizing taxes
• Planning for long-term care and healthcare costs
• Running alternative scenarios and developing a Plan B

How to choose a financial advisor

Not all financial advisors are built the same, nor do they all offer the same sets of expertise and specialties. Retirement advisors are financial advisors who specialize in retirement planning. Not all financial advisors are specialized in retirement planning. In fact, there are even advisors that specialize in specific demographics or occupations. So make sure to do your homework.

It's also in your best interest to choose a financial advisor who's a fiduciary (aka an advisor that is legally obligated to put their clients' best interests ahead of their own). 

How you prefer to pay and the total amount you're wanting to pay is another important factor to consider when looking for an advisor. Financial advisors may charge hourly, a flat fee for their services, or a retainer. Some advisors charge commission fees (which may cause a conflict of interest), or a set percentage fee of your total assets. 

You'll also want to look for a financial advisor in your area. A good place to start is by asking friends, family, and colleagues for recommendations. You can cross-check names on BrokerCheck.com and with the Securities and Exchange Commission (SEC). 

If you don't want to meet with someone in person, online retirement advisors are available through phone or video. Robo-advisors are often the cheapest option for building and managing an investment portfolio. However, they aren't usually available for other services like budgeting or retirement planning. 

'Fiduciary' is the most important title to look for

While there are more than a dozen professional accreditations, designations, and certifications advisors can obtain to demonstrate their retirement-planning expertise, the most important title you should look for when seeking out a retirement advisor is "fiduciary." 

A fiduciary is legally and ethically obligated to make the best decisions for you and your money while their own interests take a back seat. Plus, fiduciary, or fee-only, advisors are completely transparent about how they're paid and whether they have any potential conflicts of interest.

Most fee-only advisors charge an hourly fee between $100 and $300 or an asset under management, or AUM, fee that's between 0.50% and 2% of your total investment portfolio. Or they might charge a single, flat fee to create a comprehensive plan.

Consulting with a financial planner often comes at a cost. Many financial advisors charge an hourly fee (averages between $120 to $300 an hour), a flat fee (averages between $2,000 to $7,500 annually), a per plan fee (between $1,000 to $3,000), or AUM (0.59% to 1.18% of client portfolio per year).

You may also need to pay additional account management fees (typically 1% to 2% of your portfolio's value).

Non-fiduciary advisors may be paid in commissions or referral fees if you invest in a certain product or fund, as long as it's a "suitable" investment for your financial goals. Some of these advisors may claim to be making recommendations in your best interest, but without a formal commitment, you can never be sure.