You Can Do Better with an Advisor

In Our Ridiculous Approach to Retirement, Teresa Ghilarducci, a professor of economics at the New School for Social Research, writes that the 401(k)/individual retirement account model, a “do-it-yourself pension system,” has failed because it expects individuals without investment expertise to reap the same results as professional investors and money managers. She asks, “What results would you expect if you were asked to pull your own teeth or do your own electrical wiring?”

The statistics Ghilarducci cites in her article certainly illustrate American workers’ inability to save for retirement: Seventy-five percent of workers nearing retirement age in 2010 had less than $30,000 in their retirement accounts. Almost half of middle-class workers will be living on a retirement food budget of about $5 a day. And, according to the Employee Benefit Research Institute, only 52 percent of Americans expressed confidence that they will enjoy a comfortable retirement. (Twenty years ago, that number was close to 75 percent!)

Ghilarducci writes, “To maintain living standards into old age we need roughly 20 times our annual income in financial wealth. If you earn $100,000 at retirement, you need about $2 million beyond what you will receive from Social Security. If you have an income-producing partner and a paid-off house, you need less.”

If you work with an advisor, you know your retirement “number,” but Ghilarducci’s blunt talk will come as a surprise to the many individuals not working with a financial advisor. Equally distressing will be her insistence that simply working longer is not a solution for folks who have not saved enough. She stresses that the Boomer generation’s plans to “never retire” are particularly unrealistic and risky given current high unemployment rates for older workers.

The bottom line is that today’s self-help, “I can find the answers I need on the Internet” applies to personal finance just about as much as it does to dentistry or electrical wiring. Certainly, you can read and educate yourself about the issues, but when it comes to constructing and executing a retirement plan, you are in better hands with an advisor – someone who operates as a fiduciary. In fact, a 2010 report from the ING Retirement Research Institute, Working with an Advisor: Improved Retirement Savings, Financial Knowledge and Retirement Confidence, found that investors who seek advice from an advisor tend have higher retirement balances, more discretionary income, and feel better about retirement. And in this uncertain economic environment, it is undoubtedly more beneficial than ever to have a professional in your corner.

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