Should You Change Your Financial Advisor When You Retire?

Q1: Why might an advisor who was great during my working years not be the right fit for retirement?

When you're working, you're making W-2 wages, contributing to your 401k, and it's almost a seamless process. The goal is growth, and many advisors are great investment managers who help you create the right allocation to grow your assets.

But when you retire, things suddenly change. You're making withdrawals, not deposits. You need to figure out how to turn your portfolio into a retirement paycheck. You need to think about what's a safe amount to take in distributions, how to do that tax efficiently, and how that works with healthcare, Social Security, and Medicare planning. These are topics that retirees need education and help with to ensure not just the investments are covered, but the entire picture.

The analogy of climbing a mountain works here. More deaths occur on the way down from Mount Everest than on the way up because it's a different skill set and you're already tired. Similarly, the decumulation phase of retirement is totally different from the accumulation phase.

Q2: What should I ask my advisor to make sure they're equipped for retirement planning?

If you're looking to retire, here are a few questions you should ask:

First, "How are you going to turn my portfolio into a paycheck?" You want to understand their process for starting to take distributions.

Second, "Which accounts should we take from first and why?" This gets at their understanding of tax-efficient withdrawal strategies.

Third, "How are you going to manage not just the tax impact, but also Social Security, Medicare planning, and required minimum distributions?"

Finally, "What's your process for reviewing my tax return every year?"

By asking these simple questions, you'll either get someone who leans in with a great process or you'll get the deer in the headlights look. If it's the latter, it might be time to find another team that specializes in this new transition in your life.

Q3: What's the problem with advisors who only talk about investments?

That's a major red flag. When you have that initial meeting with an advisor, or even if you're with your current advisor, and all you talk about is investments—that's a problem. Investments are important, don't get me wrong. They're a crucial part of someone's overall financial plan. But they're just one part.

We need to understand your goals and what you're wrangling with. A good advisor should be talking about tax strategy, distribution planning, coordination with Social Security and Medicare, and the comprehensive picture of your retirement.

Q4: How does tax planning change in retirement and why does coordination matter?

When you're working, you're collecting a W-2 and taxes are withheld from your paycheck. Wash, rinse, repeat. But when you hit retirement and start taking distributions from your nest egg, you not only have to think about withholding, but also the impact to many other aspects of your overall plan.

The typical scenario is that a client works with an advisor and has an outside tax professional helping them. But there's often not streamlined communication between the client, CPA, and financial advisor. They can talk about broader strategies that might look good on paper, but guess what? They're usually not being implemented. Information without implementation is essentially useless.

This is where having a coordinated team matters. People don't necessarily mind the tax bill that comes from a strategy like a Roth conversion. They mind when they are surprised with writing a check on April 15th that's much bigger than they expected. Communication and planning ahead of time can squash a lot of problems before they even become a thing.

Q5: What are the red flags I should watch for when evaluating an advisor?

Three major red flags to watch for:

First, they only talk about investments. If that's all you discuss, that's a big red flag. Investments are important, but they're just one part of your overall plan.

Second, can they articulate or explain tax strategy? Taxes play such a significant role in someone's overall retirement. If they can't clearly articulate tax strategy or what they might be looking for in your specific situation, that's a problem.

Third, do they seem like they're staying current? The market is always changing. On the tax side, it seems like every single year the IRS is changing something, and some of those changes can have pretty big implications. If your advisor is kind of just set in their ways and not staying current and educated, that's a major red flag.

Q6: What's the bottom line for someone approaching retirement?

This isn't a call for people to just start firing their advisor. But it's a seed to plant—things you should be considering as you enter into this new phase. Sometimes what got you to a certain point isn't necessarily what's going to get you to the next point.

At that transition, make sure you are keenly aware of what the considerations are for you. Have a plan for market corrections. If your advisor's only plan is to say "hold on, everything comes back eventually," that's not really a plan. Just because things have worked out in the past doesn't necessarily mean they'll work out in the future. You want to make sure your advisor has a plan for a market correction that doesn't come right back.