Question: I’m still working at 67. I have an annuity that has a six year surrender hold. I have no idea what they are doing with it or how to make it grow, and I’m unsure of my retirement. I’ve used some of the $100,000 to pay off bills. I will have Social Security and my pension as well as my TSP. I’ve asked the company I’m with for guidance on retirement but that’s yet another fee and if I wasn’t afraid of finances, I would just retire. Do I need a professional to help me?
Answer: Retirement is the largest financial decision you will probably ever make — and yes, it can majorly help to have a financial adviser (you can use this tool to get matched with an adviser who might meet your needs), but not everyone needs one. But even before you consider that, it’s key you understand the ins and outs of your annuity.
The first thing you’ll want to do is obtain all the details on the annuity you purchased, says Ryann Haiss, a certified financial planner at Flynn Zito Capital Management. “What is it invested in? What are the expenses? Are there any income benefits? This should all have been explained to you in detail before the annuity was purchased, especially details about the expenses and surrender period,” Haiss says.
One of the basic responsibilities of your financial adviser is to help you understand your investments. In this case, it’s the annuity they almost certainly sold you. “Immediate annuities (not what you have) can be a sensible part of the retirement strategy, but in this case you’re fortunate to have both a pension and Social Security,” says Jim Hemphill, a CFP at TGS Financial Advisors. “Few working Americans still have pensions when they retire and what you need your investments to do for you is not to provide current income, but provide a long-term capital hedge against inflation.”
The same way a certificate of deposit has a maturity date, annuities have surrender periods which, in your case, sounds like it’s six years. During the surrender period, withdrawing funds results in a penalty, which is often a percentage of the annuity amount. That said, some annuities offer limited penalty-free withdrawals on the initial investment amount. So if you’re in need of cash, that’s one way to access a portion of your money without paying a surrender charge. Still, keep in mind that there may be tax penalties associated with early surrenders, so it’s best to check with a CPA about whether or not it makes sense to tap these funds.
Other questions that need answering include: “How much will the pension and Social Security be? What is the best use of the annuity? Waiting for the surrender to end or annuitizing it now? These are all questions a financial planner can help with,” says Cristina Guglielmetti, a CFP at Future Perfect Planning.
It’s also important to think about your retirement holistically. “Don’t go into it without a full strategy,” says James Daniel, a CFP at The Advisory Firm.
You might want to consider a fee-only certified financial planner. The reason you’ll want to work with a fee-only planner is that they have fewer conflicts of interest as they’re only paid by the client and don’t receive commissions based on the financial products they recommend. The reason it’s wise to work with a CFP is because in order to earn their designation, they’re required to complete extensive education requirements, pass exams and perform thousands of hours or work-related experience. On top of that, they’re held to a fiduciary duty, meaning they’re required to put their client’s best interests ahead of their own, which helps minimize conflicts of interest. You can use this tool to get matched with an adviser who might meet your needs.
“A financial professional can help map out your retirement years for you and track progress with you along the way,” says Haiss. “I always tell clients this may be your first retirement, but it’s not mine having worked with many retirees over the years. With a retirement plan, you’ll have a much clearer picture on when you may be able to retire depending on your income sources, expenses and goals for your legacy.”
Of course, a planner will cost you. There are varying fee structures that planners work under, from the assets under management (AUM) model which costs on average 1% AUM, to hourly planners who charge between $150 and $450 per hour and even flat-fee planners who cost anywhere between $2,500 and $10,000. “Ask for concrete examples of how the amount you will pay will be more than covered with the lines of action that the planner suggests,” says Alonso Rodriguez Segarra, a CFP at Advise Financial. “If the amount you’re going to pay is greater than the value you will receive, look for someone else.”
Even if it’s just a few sessions with an independent adviser, Mark Struthers, a CFP at Sona Wealth Advisors, says a financial plan does exactly what you’re looking for. “It maps out how all your investment and income sources including Social Security should work together to meet your goals and provide the best possible standard of living. No one likes to pay fees but the plan could provide some understanding and peace of mind about the future if nothing else. The Danish word hygge means comfort and joy, like a hug. A financial plan can do more than help you save money on taxes, fees and investment returns, it can also provide hygge,” says Struthers.