Retirement planning can be daunting. As a result, some hire a financial advisor to handle the hard parts of retirement. This can be a wise choice — the financial advisor has the time and expertise to monitor your portfolio and progress.
However, others worry about paying an advisor or picking an advisor who doesn’t have their best interests in mind. Thus, many DIY their plan.
This article will explore when DIYing your retirement plan is feasible and when seeking a professional advisor might be the better option.
When To DIY Your Retirement Plan
DIYing your retirement plan may be the better option if you have a strong grasp of saving, investing, budgets, and retirement account basics and you enjoy tracking your finances.
It can also make sense if you have a simple financial situation or you’re not in a high earner bracket — there is less to manage and track.
You must continually research and educate yourself on investment strategies, tax consequences, the market, the economy, and more. You’ll also need a retirement calculator to plan and check your progress.
Elements Of A DIY Retirement Planning
Here are some elements to include in your DIY retirement plan.
Workplace Investment Or Savings Plan
If you’re employed, you may have access to a workplace plan, such as a 401(k). This is the foundation of most retirement plans.
Contributions are pretax. Many employers offer matching bonuses — this is free money, so it always makes sense to at least hit your matching bonus.
Workplace plans tend to limit investment choice, offering a few funds you can choose from to invest in. However, they may also have high contribution limits.
Individual Retirement Accounts
Individual Retirement Accounts, or IRAs, are retirement accounts you can open at most brokerages and financial institutions.
There are two types.
- Traditional IRA: contributions are generally tax-deductible, and growth is tax-deferred. retirement withdrawals are taxed as ordinary income, and you must take required minimum distributions in retirement.
- Roth IRA: you can’t deduct contributions. however, growth is tax-deferred, and qualifying retirement withdrawals are tax-free. no required minimum distributions.
IRAs have lower contribution limits but let you invest in most conventional securities, like.
- Mutual funds.
- Index funds.
Taxable accounts may help after maxing out other accounts.
These accounts have no tax advantages. You may owe taxes on gains from sales and interest/dividends earned.
However, these accounts let you invest in most conventional securities, like IRAs. Unlike IRAs, though, you can withdraw your gains at any time.
As a result, taxable accounts may help if you plan to retire early or want to try a different investing strategy from your main retirement accounts.
Generally, a more aggressive strategy tends to work best when you’re far from retirement. You don’t need the money immediately, so you can potentially deal with more fluctuations.
However, many retirees shift to a more conservative portfolio as retirement approaches. This reduces potential profits but also the risk of significant losses. You can preserve your assets for when you retire.
When To Work With A Financial Advisor
A financial advisor may make sense when you have a high income and a more complex financial situation.
Your time is valuable. Time spent managing your finances could be more effective directed at earning money instead of managing your portfolio. If your hourly rate is more than the cost of an advisor, hiring an advisor could make sense.
Furthermore, as a high-income earner, you’ll likely have more financial accounts to consider. Optimizing your contributions to multiple accounts, juggling investments, and planning for taxes can take a lot of time and effort. An advisor can take that off your plate.
Living on your retirement funds is more of a reality when you’re close to retirement, so an advisor can help you preserve your assets for long term use.
The Verdict: It Depends On Your Circumstances
Advisors can be helpful and supportive, but may not be everyone. People with simple financial situations or those who want more control may DIY their retirement to save money and learn how to manage their investments.
On the other hand, those with higher incomes and more complex financial situations may be better served by hiring an advisor.
In both cases, working with an advisor is a valuable choice when you’re close to retirement.
Overall, it may make sense to DIY retirement early in your career. However, as you progress and grow your assets, an advisor may become necessary to achieve your retirement goals.
Disclaimer: The above references an opinion of the author and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. Invest responsibly and never invest more than you can afford to lose.
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