Friday, February 08, 2008

Managing Retirement Savings

Five years ago, we began considering using a financial advisor and started a process to evaluate candidates and identify one for managing our funds in retirement. After a short time, we did find a wealth management group we liked and put 30% of our savings in taxable accounts with them. Several of our friends were surprised I did this, since I enjoyed investing and trading. Here are the reasons we decided to outsource management of our investments:

  1. Successfully managing a large amount of savings would be "work." While I was working, my company's retirement account was 100% invested in company stock. In addition, we kept most of our IRAs in CDs. The remain savings in taxable accounts were split between individual stocks and money markets. This allocation of investments served us well while we were working, since we saved about 20% of our income every year and didn't withdraw from savings. Thus, we were comfortable with my "recreational" investing and the returns on a small part of our savings.

    In retirement, we realized that we would no longer be contributing and that withdrawals would need to be made. It would be important to ensure that the total portfolio was well invested, versus the small portion with which I was actively managing. I also realized that it would take significantly more than the 2-3 hours I spent per week to manage the total portfolio. I didn't want my new full time job to be managing our retirement portfolio :-)

  2. I wanted professionals who were working full time in the field. While I will tend to a small cut myself, I would want a trained, practicing surgeon to repair an injured knee. Similarly, while I am happy to manage small investments myself, I would want a full time financial advisor to manage a large retirement account.

    Of course, just as it is important to find a good surgeon, it is important to find a good financial advisor. That's why we started evaluating advisors before we retired.

  3. Enable myself to enjoy more activities. I do enjoy investing, and I also enjoy sports, family activities, and other entertainment. I didn't want investing to be my major activity in retirement. By paying someone to manage our funds, I free up a lot of time to do the other things I enjoy.
Some readers may be asking why I don't invest in index mutual funds and save the fees paid to a manager. There are a couple reasons. First, I expect our manager to provide more than just investment management. I also look for him to help in estate planning, education savings planning, and validating future spending plans. In addition, I expect him to stay abreast of market trends, new investment vehicles (e.g. ETFs) and provide options to which I don't typically have access. Overall, for the past four years, I have been happy with the total service of financial advisor, who has kept me invested in the market and freed up some of my time to do other things.

For more on Reaping the Rewards, check back every Friday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

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