Do You Really Need a Financial Advisor? Here’s How to Decide

You're listening to The Smart Wealth and Retirement Podcast with Financial Planners, Jim Martin and Casey Bibb. Clear guidance, plain English, and tools you can use to make smarter money decisions. Now, on to the show. Many people wonder would it actually make sense to hire a financial advisor in whether they might be too early or too late? In this episode myself, Jim Martin and our guest co-host today, Lynn Woodfrayer, bright down the most common moments when professional guidance as real value, with special focus on the five years before retirement and why that's such a critical planning window. So, let's get ready to make retirement great. You know, this is a question we get asked all the time. When is the right time to hire a financial advisor? And today, we decided to bring Lynn Woodfrayer into the mix to help answer these questions. Lynn Wood is a financial advisor with Mark Wealth Solutions, one of our lead financial advisors. He's a graduate of the Virginia School of Business, a finance degree, has a lot of background in financial planning. And I thought this would just be an excellent time to dive into this topic and talk more about it. Casey, she's out sick with some sick children today and we'll be back next week. But I know Lynn Wood, you're in the big chair today. How's it feel over there? It's big shoes to feel. I've got a lot on my plate to take over today. You do indeed and we're talking about something that's near and dear to our heart. When you should hire an actual financial planner, a financial advisor, and clearly we're biased in this. But I think the time is sooner than later would you agree? I would agree. You want to get on that sooner rather than later because most people wait till something breaks and like a market downturn, a tax surprise, retirement date sneaking up on them. But the best plan that happens before all of those moments occur. I think that's exactly right. There's no perfect time to do anything. Actually, I remember this. I had this uncle who got married. He's kind of close to me in age, but I remember I sat down and his wife is Catholic and we sat down and I've never been to a Catholic, I don't know, ceremony. And this priest, I thought, just did the most remarkable job and it stuck with me. It stuck with me forever. And he talked about, you know, there's a lot of people out here who will say, "Dog and windy." They're not ready and he went through this whole idea of talking about the wind, wind people are ready or when it should be done. And he finally got to the end and said, "There's no perfect time. There's no perfect time." It's just when it's right. So today we're going to go through some of these areas that are right. We're going to talk about where we've seen people hire advisors as the most value, especially in that five year window before or after retirement. So let's get into the big one, Lynnwood. Let's just jump right in. The big one is, when you're five years out from retirement, hey, that's kind of go time. That's that retirement risk zone as we like to say. And if there's one moment we want to underline, it's this time when you're five years out from retirement, right? Oh, absolutely. That's when you're in the batter's box for all you baseball fans out there. The questions are changing. You're no longer asking, "How much can I grow my money?" You're now starting to ask, "How do I turn what I've saved into income?" And those are very, very different problems to have. So, here's why that five year window matters so much. You're close enough to retirement to make meaningful adjustments. But far enough away to fix any mistakes that you may be doing currently. Social security decisions are coming into focus. You've got a lot to think about there. There are many different ways to take social security and it creates a lot of questions for most people and a lot of anxiety as we get closer and closer to that day. Tax strategies become more critical and risk management matters now more than raw returns. Yeah, and you think about this, it's kind of like taking a trip in a lot of ways. You've been working for what, the 30 or 40 years. And imagine just transitioning from working into retirement with no plan. That would be like taking a trip, I don't know, into Chile to go see or Peru rather to see Machu Picchu and then not knowing where you're going to go, you just show up. Yeah. I don't think that's a recipe for like a great vacation. Yeah. The same thing about retirement planning like people that actually spend the time to think about it. It really there. And I think most retirees mistakes they happen in that couple years before retirement. They don't happen usually in the middle. They happen kind of before or early into retirement is where I see most of the mistakes. I don't have any way to to quantify that. But that's just what I see. I think again, the first one on our list today is if you're within five years of retirement and you have not sought out professional advice, it's go time in my opinion. Then what's number two on our list? Number two, I'd like to go over there's five other times really when it makes sense to hire an advisor. I believe first time that comes in mind is when your finances feel complicated, even if you're doing well in life, we meet plenty of people who are financially successful, but still overwhelmed, you know, many couples will come in. One of them is the major breadwinner of the house. They may feel comfortable with I've got a good income. I don't foresee myself outspending this, but the spouse a lot of times will have high anxiety around that, especially when multiple accounts, old 401ks, different advisors have been in the mix. You've got no real strategy for what's going on. Everything is doing something completely different and nothing's talking or working with each other. Well, yeah, I think it's easy to feel that way because it's overwhelming. First off, there's a ton of things that are about to change in your life. You're about to embark on retirement. You've never retired before. You're about to lose this job or walk away from this job that or career that you've been at probably your whole life or a big portion of it that feels comfortable and safe. And now you've got to take your portfolio and turn that in income. And then when do I take social security, what Medicare plan? Do I need a will? Do I need a trust? Do I have a tax strategy? It's overwhelming. Just talking about it. And I think that's why a lot of times when we sit down with people, they'll look at us and say, "I wish I had to sit down with you earlier." I don't know how often you hear that, but that's a recurring theme that I hear a lot in wood. Oh, yeah. I get it plenty and it makes me laugh because when they say that, I'm like, "You might not have wanted me at that point in time." Well, yeah. You were probably a little too young then and 10 years ago to do it, but yeah, you know, I hear that. I hear that. I don't know, again, I don't know there's right or wrong to when you should seek professional vice. But I think it's a great one. When it starts to feel too complicated, I think it really, we've seen a lot of market growth over the last few years, and a lot of that market growth is causing these balances on 401Ks, IRAs, et cetera, to be much larger than they would have been just five years ago. And now it's getting real. I tell people, it gets real, real fast in retirement. So let's move on to number two, taxes. When taxes start to matter more than returns, and I know that sounds wonky for some people out there, but at some point, the biggest threat to your wealth is market performance. It's the tax man take it away, right, Lenwood? Absolutely. Especially when you're thinking of things like RMDs, those require minimum distributions, the taxation on social security, some of you may or may not know your Medicare premiums are affected by your income, Roth conversions, all of these come to play when you're in retirement. You're withdrawal order matters, your tax bracket matters, the timing of all of these distributions matter. And this is where planning often saves more than investing alone ever could. Yeah. And I think it's, I guess one of the reasons why when we build a financial plan, we go through this milestone's based approach and the idea, and I know, I know everybody that listens to the show has heard me yak about this. And secondly, but it didn't today, we start with, we're going to build a smart wealth plan. We're going to start with your income and your investments, want to make sure you have enough income to get to into retirement, want to make sure your investment plan supports that. But number two, the second milestone is taxes, because the moment you write a check to Uncle Sam, that money's gone forever. We're not going to ever see that again. So if we can build a tax strategy, it's really powerful and then what you may hear this a lot from your clients, but one of the things I always have conversations with people about is they're always saying, Hey, I need a, I need a CPA referral or I need a tax to referral. Because my guy or gal is not doing anything and I said, what do you mean they're not doing anything? Are they, they're not prepping your taxes and they're like, well, no, they're doing that, but they're not giving me any advice in the future. And the reason is really simple, is that they're not, their business model is not built to do that. If you think if you're a tax accountant, what do you have? You, you're a charge of 500 bucks, a, a return, which you're like, Hey, that's really expensive. Until you realize like these people need to have a mountain of people in order to actually make some money. So they're going to have a ton of people out there because they've got staffs and they got overhead, they got lights, they've got bills, they got insurance. So they might have 500 clients they're working with and they have to do all of their work, all of it from February to April 15th. And they don't have time to think about your specific situation 10 years into the future. So that tax strategy is a really big deal. All right, let's move on to the next one on our list. When you're unsure about how much risk you're taking, right? Like we see two extremes here, we see people taking way too much risk, a lady life, or, or people hiding all of that cash kind of under their mattress for a decade doing nothing with it, right? Oh, yeah. Now, neither one works. Even though you convince yourself, this is the right thing to do. Neither one is a smart strategy in the end. The right level of risk really depends on your income plan, not just your age or the headlines in the news, but really based upon that income plan. You want to have an advisor help match your risk to purpose, not fear, right? Yeah. Balance, right? Yeah. I think that's what it's kind of everything. I have to admit where I just ate lunch. I feel really guilty for it. I went to Dairy Queen because it's close. And I went in there and I'm there and I'm, you know, it's the new year. I'm trying to cut sugar out and add this meal deals, a $7 meal deal. Like, oh, I want that. That's pretty cheap because I'm not that hungry right now. So I bring this burger, which is fine. It's pretty stripped down and fries, which I don't eat very much, but then they bring me a Sunday. And I think to myself, oh, man, so I had to have the Sunday for balance purposes. I can have it all. So I don't feel so guilty. But I think it's a lot when we're talking about risk is you can't go to one extreme. You can't just order Sundays at Dairy Queen and that's the only thing you eat. You've got to also work in the other terrible food groups like fries and burgers. Yeah. But I'm saying you got to eat your vegetables, so you got to, risk is that way, right? I see a lot of people, especially as you, you're at that 12 month mark. You're about to retire. You look at your money as one whole thing. And what they fail to do is sometimes break that out into different goals and think of, I don't need all of this right now. I need some of this now. I'll need some of this in 10 years. I may need some of this in 20 years. And being able to allocate it to those timelines. I see a lot of people have trouble with in their mind mentally as they get ready for retirement. But, and I think it's probably pretty normal because you have to change the way you think about money. Yeah. If you think about it, if you think about the two distinct areas of, of planning purposes for most people, we have the accumulation stage and it's pretty easy during the accumulation stage. I mean, I'm saying it's easy to say, but you know, you, you allocate 10% of your 401k into your, or 10% of your income into your 401k. You put it in some index fund that's high risk and you sort of get out of the way and live your life. Yeah. And now we're getting close to retirement. Now we're in the decumulation stage and you, you kind of get deer in the headlights and you freeze because it's, it's really difficult to figure out, where do I put this money? And the, the stakes are higher, right? Like, now if we have a 30, 40% market decline, I might get hit in the forehead and, and I have to keep working or go back to work or run out of money along the way. So I, I just feel like those are some things you, you really need to get dialed in and a good advisor will have those conversations with you and help you understand how much risk you should take with your money. And again, I can't tell you how many times I sit with people and they're actually taking way more risks than they need to, to hit their goals. And to what end? To what, if it keeps you up at night, what, what are you accomplishing or vice versa? You meet with people, all the money's in cash and you think to yourself, wow, your, your net real return is negative over the last couple of years. All right. We'll get off a risk where I think we're, we're, we're beating this one to death like, like we normally do. But let's move into the next one. I would. Yeah. I think, I think that conversation really leads well into number four on our list here. When one spouse is more confident than the other, you know, this is a really big one. If one spouse is extremely anxious, extremely fearful or if one spouse is extremely, not greedy, but very, very risk adverse at that point, that tension doesn't go away on its own. And when you have two different extremes in a household, it typically isn't going to go well, that conversation of, okay, we're trying to balance this out. What's that happy medium? Where is that? We've got to come to some compromise in there of, we can't be all the way risky. We can't put everything under our mattress either. We've got to have that happy medium. Yeah. I, I think you, um, I think that's just the conversation with your spouse. Sometimes it's hard though. People are so different and it's okay to sit down with a third party who's not biased. Who can say, Hey, you can have your cake. You need it too. I can't tell you how many times I've sat down with couples who have had competing goals. Like, Hey, I want to, I want to go to Hawaii, I want to do X. I want to do Y and Z. And the other person says, I just want to make sure that we can help support our rank kids and put them through college. And then you run the numbers and you realize I can do both. Yeah. That's pretty cool. I mean, that's pretty cool. I think. Yeah. I find it amazing how, what, having that third party there can make such a difference in what that outcome would look like. Like, it take me and my wife, for example, we will sit down. We could argue for hours and hours about where we're going to go to eat that night. I know most people do this in their lives. All it would take would be if we had a third person there, if they gave an option, probably doesn't even matter where it is, we'll most likely agree to go to that one. We won't agree to go to any place that the other one recommends, but if you bring a third party in there, even if they're not going, they just say a place, we'll agree to go to that one compromise and we'll be done. Say so many arguments by having somebody in there that just has an outside look of things. There's no, he always gets his way. She always gets her way in. Yeah. Speaking of, if you guys ever are in Richmond, Virginia, I think I have the name right. There's a restaurant called, I don't care. Yep. So anytime a spouse is arguing or not spouse, but any, any couple and you ask your, ask you're seeing anything other, where do you want to go? I don't care. No, let's go. It's a bar called, I don't know when they say, where do you want to go? I don't know. Yeah. We're going to, I don't know. Yeah. So they have these all over the United States where these clever little owners have, have decided to name this and I think they get 20% of the foot traffic just from that. So I think it's amazing. Okay, let's move on to the next one. When you're asking, am I actually ready? You know, I think this is a good one because a lot of times what people will do when they're thinking about retirement, they're mentally, they're ready, but maybe financially they're not quite sure. And sometimes the biggest value of an advisor is answering one simple question. Can I actually do this? If I retired, am I going to have enough money to pay my bills to do the things I want to do and live a great life and we've seen people work in extra two or three years simply because no one ever showed them the math. And you know, I'm a big believer that clarity creates confidence actually knowing the numbers is really important. Yeah. To be fair, there are times where hiring an advisor may not add much value, but it's definitely good to ask, am I ready? You know, when is that right time? Yeah. Because you may, it may be right. It may not be quite ready yet, but you may actually be in a great position and advisor can add a lot of value and you may not have to do as much as you thought you did. You may be in a better position than you think. Sure. This is an interesting thing, but you know, there's a lot of people who will never be able to give up control of their money, of their planning of anything. And I think that's fine. Like there's, that's fine. You should do you, but at the end of the day, what a good advisor should actually do is it's not just picking investments. That's what I think some people think advisors do. They should be really helping you coordinate your entire financial life. They should help you pick a clear income plan, reduce lifetime taxes if possible, mitigate, risk intentionally, plan for your health care longevity, plan for spousal continuation of the lifestyle, help you with your legacy planning, adjust as your life changes. And just as important, I think it's, when we get into bad markets or things don't go the way they want, it's just a sounding board to make sure you're not missing it. I think the biggest thing for most of us is we just don't want to make a big mistake. And I think that's really what it comes down to is, is the mistake that you might potentially make bigger than the cost you're paying for the advisor. And look, if your value of your account is over $500,000, this stakes are high now. You're over $2 million, this stakes are really high. And I think that's where an advisor comes in. And when I think about an advisor, I think that a lot of times people, they lump us all together. You want to find somebody who's a fiduciary, somebody who works as part of a team, somebody who is very planning focused. If somebody's coming out and talking to you about an annuity or trying to sell you product, likely not to write the right angle. But if they're talking about all the things we win over today, I think that could really be helpful. Alright, let's get to the Q&A. Now Lynn Wood, you've not participated in our Q&A before. I know this is usually cases, but I'm still going to put you right in case you see here. This is why I try to stumper. And I ask questions that I think people out there who are listening might have questions as they heard this. Let's start here. Isn't it too late to hire an advisor once I'm already retired? I don't need one once I'm retired, right? Lynn Wood? It's not too late at all. Many of the most important decisions, taxes, withdrawals, risk, a lot of these happen actually after retirement. Yeah, so it's never too late. Yeah. It could be too early. There are times when we sit down with people who are 52 years old and they just need a little bit of tactical help around their 401k or 403b or whatever, but they're not there a couple years away. Yeah. Generally speaking, though, for folks in retirement, there's a lot of value in my humble opinion that advisors can add there. Alright, question number two. I think this is a good one here. How do I know when I'm ready for an advisor? So I know you guys went over all this stuff, but how do I know when I'm ready for an advisor? That's an interesting question that one is. And really, I think if you're already asking that question, you're probably close. Yeah. Especially if retirement is within sight, you know, if you're walking up the steps, you're about to walk through the door of retirement in the next few years, you definitely should be asking, do I need an advisor, especially do I need a financial plan? Because there's a lot that's going on, like we said, taxes, social security, investments, risk, there's the emotion of all of this that's playing along as well, balancing the two different potential people in the household that are involved in this. There's a lot going on there. And if you don't have a plan, you're going to have a lot more questions and a lot less answers. Yeah. I think that's a nice well said. Alright, last but not least, should I wait until something changes before I actually reach out and hire an advisor? That's exactly the time when people wish they planned earlier, proactive planning, beats reactive fixing every time, you know, you, you see the issues going on. You hear your cars rumbling, it doesn't drive right, you know, something's off. You don't like to take it to the mechanic until you see smoke in the engine block. That's exactly right. That's way too late. You take it weeks before when you notice the problem, so it doesn't build up to a huge massive, you've got replaced the whole thing. When the check engine light comes on, you take it to the mechanic and you get it figured out. Exactly. You know, I've got this, I've got this beautiful outdoor porch on my house. And I don't know if you've ever seen a deck that's never been weather treated before, but the wood gets wood, wood gets gray, gets cracky, it looks terrible. So every, every two years, we go out and it's a pain. We have to put, we have to put wet the treatment on it and all these other things. Well, let me be clear. I hire somebody to do this. It's a pain for them and it's a pain for me to write the check. But at the end of the day, we treat this deck every two years. And the reason I don't do it is because you've got to get on a big ladder to get to the top of the cathedral ceiling on this thing. But the idea is I want to keep it really nice for as long as possible. And the only way to do that is by taking preventative maintenance on this. So no, I think if anything we talked about today kind of hit home with you, chances are the time is right here. So you know, the right time to hire an advisor isn't about hitting a specific net worth number. Like sometimes people say, well, when I get to 500,000, I get to a million, I get to two million, I'm going to give Linwood a call. I think it's more about entering the phase of life where the decisions matter more than ever. So Linwood, as we sort of wrap up today, any final thoughts before we take the show out? Yeah, for most people, that five year window before retirement is where planning really is going to have the biggest payoff. You don't want to walk through the front door into your new, wonderful retirement and have no idea what's going on. You don't want to walk into a blind because that's when you're going to make mistakes. And if you ask people that didn't, you'll probably hear a lot of answers of, I wish I had somebody to help me so I didn't do something stupid. Yeah. Every year there now or approaching it, clarity is going to turn, is what turns uncertainty into that confidence as you're getting into retirement there. Yeah, you know, it's not even that somebody's done something stupid. It's just that you don't know what you don't know. And I think that's the challenge with so many things. Most of the times where I make mistakes is where I've done something one time and I screwed it up. I've got a pretty good gash on my finger because I was out working on something that I had never worked on before. And boy, it lit my finger up. I put a big gash out. I'll never make that mistake again though, but that was painful first one. So I didn't tell me do something the first time. I think the mistakes can be pretty big deal. So I think it's really important. Look, if you're stepping into retirement without a clear plan, I just want you to know that you're not alone. Lots of people have been in the same position that you're in today. Here's the good news. You don't have to figure it out all on your own. If you would like our help on it, go out to martinwealth.com and we would love to have a conversation with you, walk through your questions, and help you build a plan you can trust. For myself and Lynnwood, we want to thank you for listening to the show today. Remember, plan well, retire happy, we'll be back next week. Take care. We appreciate you joining us today for this episode of The Podcast. Canadians voiced in this podcast are provided for informational purposes only and is not a solicitation or recommendation of any investment strategy. There is no assurance that any investment strategy will achieve its objectives. Information provided is not intended as tax or legal advice. You are encouraged to seek tax or legal advice from an independent professional. We are not affiliated with Social Security or any governmental agency. New River Financial Group LLC is a registered investment advisor offering advisory services in the state of Virginia and other jurisdictions where exempted. New River Financial Group LLC doing business as martinwealth solutions. Investing involves risk including the loss of principle. No investment strategy can guarantee a profit or protect against loss and periods of declining value.