Retirement is a welcomed stage in life, but for many of us it comes with trepidation as to the adequacy of our financial resources. Some retirees have better retirement plans than others, but most of us will need income from our investments and savings to replace our former employment income.
Before dipping into your investments and savings, it is important that you know where you stand financially. You can find out by having a Fiscal Fitness Checkup to evaluate the current state of your finances. At a minimum, your checkup should include an accounting of your assets and your debts, and a realistic estimate of your expenses and revenues. If there is a negative gap between your revenues and your expenses, you may need to make some immediate adjustments in order to avoid depleting your resources.
Examples of adjustments might include reducing your living expenses and/or rearranging some of your assets in a manner that could provide additional income. Whether you do your own checkup or you work with a financial professional, it is essential that you know where you stand financially.
Most professional advisors have financial planning software that can provide you with projections and illustrations of various financial scenarios. If you want to do it yourself, there are a number of websites that you might find helpful. A good example is: www.tiaa-cref.org/public/pdf/pdf/Your-Fiscal-Fitness-Review.pdf.
Once you know where you stand financially, it is essential that you develop a financial plan that is designed to address your current and anticipated goals and needs. A good plan will include some realistic budgeting and a viable long-term investment strategy. Creating a budget is a straightforward process, but constructing an investment portfolio that is right for you requires investment knowledge and expertise. Unless you have broad investment knowledge and considerable investment experience, it is advisable that you obtain professional assistance with the selection and management of your investments. When selecting an investment professional to work with, it is important to understand the nature of your business relationship.
When acting as an investment advisor, your investment advisor representative is compensated either by fees paid based on the value of your managed Investments or by flat financial planning charges. These flat fees can be based on hourly rates or at negotiated flat rates based on other time parameters. An important distinction is that an investment advisor acts in the capacity of a fiduciary and has a legal responsibility to always act in your best interests.
In contrast, your broker dealer representative is obligated to act in an honest manner and offer “suitable” products, but their incentives to earn commissions can potentially create conflicts of interests. Some individuals are dually licensed and have the ability to charge commissions and/or fees. You should ask for and review the Firm’s Investment Advisory Disclosure Brochure to see how they charge for their specific financial service offerings.
It is also important to know that your accounts are secure. That includes knowing which financial institutions are the clearing brokers and/or custodians for your accounts. You should also familiarize yourself with what measures are in place to secure your accounts. For example: The clearing brokers and custodians of your account should require that any funds distributed from your account are payable to the title of your account. Any exceptions should require your written authorization.
Having a trusting relationship with your advisor or broker is a good thing, but it’s your money and it is a prudent practice for you to always review your account confirmations and statements in a timely manner.
Dennis Finneran is a Certified Financial Planner ™ and an Investment Advisor Representative with Hershey Financial Advisers, LLC, 1801 Lititz Pike, Suite One, Lancaster, PA 17601.He resides in Palmetto Bay, FL. Contact him at 305-251-6933 or by email at dennis@hersheyfinancialadvisers.com.
