- Investing (security selection, asset allocation, estimated returns and risk)
- Insurance (life insurance, annuities, long term care insurance, health insurance)
- Benefits (social security, pensions)
- Estate (how much to leave to beneficiaries, wills, powers of attorney)
- Taxes (tax minimization/planning, proper tax filing and recordkeeping)
- Spending (budgeting, charitable planning/giving, travel, gifts)
I'm sure I missed a few, but you get the idea.
Fortunately for people who live in the United States or most other developed countries, there are established networks of professionals who have built their careers around each of these areas. In every major (and minor) urban area, you are bound to find a competent investment advisor, attorney, CPA or insurance agent to handle each of these areas.
Unfortunately for this same group of potential retirees, most of these professionals operate within their own little worlds. Not only are they constrained by their own set of regulations, they also have different sets of incentives. These two factors, combined with their lifelong dedication to learning all there is to know about trust construction, or the tax tradeoffs of forming an S-Corporation vs. an LLC, or the risks and rewards of investing in emerging market stocks vs. high yield bonds, cause these otherwise competent and dedicated people to see your situation through their own lens - and that can sometimes cause problems. Furthermore, there is often a not-so-friendly rivalry between these groups, to the extent that the potential solution to your problem crosses boundaries between the two (or three or four).
When you are a hammer, everything looks like a nail
So, when you walk into an insurance agency to talk about your upcoming retirement, the insurance agent will tend to give you advice from an insurance agent's point of view. You will most likely receive a very strong and convincing pitch about the benefits of variable annuities or fixed index annuities, or whole life insurance. In fact, there is a group of insurance agents that believe that a person's entire financial life can revolve around a properly structured whole life insurance policy - the book Bank on Yourself outlines the strategy if you are curious, although I personally do not endorse this strategy, especially if you are almost to the point of retirement, but that is a discussion for another day.
An investment advisor will look at your situation in terms of the "proper asset allocation," and "safe withdrawal rate." Much time will be spent finding just the right stocks, bonds, ETFs, mutual funds and money market funds to allocate your account to. They may also brag about their practice of not accepting commissions or referral fees, and charge a "very reasonable" fee of 1% of assets for their efforts - as long as you meet their minimum asset requirements. Insurance agents are often a necessary evil, who they will grudgingly refer you to if you need term insurance or long-term care insurance. There are also "financial advisors" who are actually commissioned salespeople for brokerage firms, such as Edward Jones or Ameriprise. Their pay is opaque and often expensive, although sometimes they are the only option for people with smaller accounts who want some sort of investment advice beyond the "help" section of their E*TRADE account.
Along these same lines, a CPA will frame everything from a tax point of view. An attorney will want to make sure every legal base is covered (and will bill every phone call in 6 minute increments at $500/hour - definitely an incentive to be thorough!)
None of this means that anyone here is bad or dishonest - it just means that they often don't have the whole picture, and also don't always appreciate how everything affects everything else. At their best, the real "pros" will creatively structure (within their own regulatory bounds) solutions that make everything work in harmony.
I would also recommend hiring a financial planner on an hourly or retainer fee basis if you feel that you don't even know where to start. Although financial planners have their own incentive systems and biases (sometimes they gloss over the investment side of the equation, and can be biased against insurance agents due to their method of compensation) they can be invaluable in pulling everything together in one coherent package. Of course this adds an extra layer of costs, but it can be worth it if you barely even know where to start. There are a few organizations that can help you find a financial planner who fits your needs in your area.
Garrett Planning Network
XY Planning Network
NAPFA
The Poor, Lonely Immediate Annuity - Caught Between the Silos
One example of a product that, in many situations, can add value to a retirement plan but doesn't get much respect is the lowly Single Premium Immediate Annuity (SPIA). Although it is technically an insurance contract - insurance against you living too long - it can be very useful when integrated into a retirement portfolio, since it provides a lifetime income stream (sometimes indexed to inflation) guaranteed by the insurance company. While I don't think anyone would recommend annuitizing all or even a majority of an investment portfolio - since you give up access to the principal balance of the annuity - it can really help provide a guaranteed* stream of cash flows for necessary expenses in retirement.
So why doesn't an SPIA get much respect? Incentives. Investment advisors don't get paid for them, because they are only sold by insurance agents on a commission basis, and insurance agents don't get paid a lot - typically a one-time commission of 1%-3% of the principal balance. Why is the commission so low? Because the insurance companies don't make a lot of money off of them! Most of the benefit goes to the annuitant (i.e. you!) To be fair, there are a lot of psychological hurdles to overcome with buying an SPIA, but the incentive structure doesn't provide much impetus for the insurance agent (and especially the "fee only" investment advisor - who would lose a lot of assets) to try to educate the retiree on the benefits. Instead, the insurance agent will typically give you the hard sell on a fixed index annuity or variable annuity, which are much, MUCH more complicated and expensive to the customer, but pay big fat commissions of 6%-10% at the point of sale. Hmm, do I want to make 1%-3%, or 6%-10%???
On the investing side, the investment advisor will show you how his "properly structured portfolio" or "tactical asset allocation model" when combined with a "safe withdrawal rate" will obviate the need for such a "low return" product like an SPIA. Althogh it adds more complexity to your plan, your investment advisor gets his 1% fees per year (or higher) on all of your money now.
There are many, many more examples like this one, but suffice to say, it behooves you to keep the big picture in mind, and ensure that all the pieces of the plan are working with each other, not against each other.
*The "Guarantee," in this sense, is supplied by an insurance company. Although it is a rare occurrence, insurance companies have failed in the past, so look for highly-rated carriers.
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