Do we need a financial advisor?

gm0

The decision about wanting an IFA is for most - entirely about you and any surviving spouse.  You can DIY (absent rare edge cases where legally advice is mandated).  You don't have to.

To learn to setup for drawdown (pension freedoms) takes some learning (terminology, tax, mechanics) i.e. work. At least one of a couple (if relevant) needs to be willing to spend time on it.  Operating it then takes less work but not zero so either both need to become comfortable with that or rely on the support of adult children.  Or take advice but later.

Look at it like this £££ and how you want to spend your time

Here is what moving an accumulated pension into drawdown *should* cost you:

A first order of magnitude market price for the total cost of having old occupational pension moved into drawdown

Benchmark prices DIY

DIY 0% on the way in.  Transfer cost = your time.  A refund. One off cashback to come - say £500 to offset fees (offers vary). 

Then 0.3% pa for platform and funds.  No advice fee.  As you are on your own.  Platform "guidance" is of little help to be honest.  Some of it is marketing (of their own fund sets).  You in general need to look for better guidance from people who are not selling you anything or trying to cross/upsell as with platforms.  The better news is that simple funds that are not a stupid choice are widely available.  "Best" no - whatever that means.  Adequate yes.

Benchmark with advice

With formal "suitability" fact find and recommendation (advice) to guide you to a platform and funds (adviser introduced one).
 
1% on the way in (but capped to a maximum pot size). 
0.5% for advice ongoing.  
Your admin time to find and contract with an independent advisor who isn't a wealth management shark. (FA)
Then 0.3% pa for platform and funds.  So about 0.8% all in to run it for you.

If you or your adviser are convinced of the merits of star fund managers and active fund management you can add ~0.5% pa to those ongoing fees as extra fund management charges for a different selection of investment choices.

If you have the time and motivation then it is not rocket science.  And may provide an early retirement activity learning something new to you.  You don't have to do it.  Advice is widely available from IFA (I = independent - a key feature). 

But between costly and very costly depending upon whose clutches you fall into.  (Like buying a car - the cheap one still gets you there.  Some people like a luxury car experience or something exclusive (veblen goods) and are prepared to pay for it.   Decent market price independent advice is more like hiring an electrician or a plumber to do something requiring skills and certification that you choose not to learn to do yourself.   Wealth managers/FAs provide a "white gloves" version of the same FCA regulated process at three times the cost. So they are something else.   Private banks (not for the likes of us) are the true veblen tier for the very rich above the wealth managers.

Expensive yes or no - what does 0.5% pa represent ?

Take value of DC pot.  Consider a 40 year retirement.   Take the halfway value (assuming deaccumulation from 100% to 0%). Multiply by the duration (40) and the cost of advice 0.5% pa.  That's 10% of the pot.  Add the initial charge. So 11% in my benchmark world.  Higher figures in wealth manager world.  Could be 15% plus of initial pot value in product charges over its life.  Depending on your initial pot size that could be several lovely holidays or a car.   In intermediary fees.

Clear implication: Financial advice is a luxury good.

The counter argument to this pro-DIY argument. So arguing to use one off transactional advice (no ongoing fee) or full advice - is that investment performance (which you cannot control) is larger and wilder than trifling small variations in fees. Which is true in that you cannot control it.  And investment volatility is indeed bigger. But the cost drag pea is still under the other cup - for all the arm waving.  And wait - strangely no wealth managers or IFAs make any representations about the performance of the investments they recommend.  It's not part of the deal. It's not what it does.  Sensible risks for you to take yes.  Suitability guarantee.  Speculations that will pay off - nothing to say about that - either in absolute terms, nor relative to other choices you could make.  No promise to beat the low cost whole of market funds.  They get paid rain or shine.  You get paid. Last.  The implication that it will perform "better" is used to market and sell a lot of advice - even though this is not going to actually be in the contract you eventually sign.

So why not control the thing you can control (costs) and do something mainstream. 

If you do choose to spend time on other things and need advice.  Find an actual professional independent adviser operating in the world of capped initial charges and a decent benchmark ongoing fee.

The other family tax advice may be stellar and useful to you.  Or irrelevant for simpler affairs.  The IFA and FA can both do that bit.  And will do the same regulated (by FCA) pension suitability advice deliverables.  One will be cheaper than the other

You do you.  Hire it in.  Or Learn it.  Neither is wrong

Moonwolf

niftythrifty33 said:

Thanks for the good advice. @Moonwolf do you mind explaining what mistakes you made, no problem if it's too personal.

Probably the key points are in my post in this success stories thread, the whole thread is worth a read anyway.  https://forums.moneysavingexpert.com/discussion/comment/80070465/#Comment_80070465

Getting a high cost AVC plan with Allied Dunbar then going for a full pension with them and also not keeping an eye on what was happening. 

I would add 

Put as much in as you can afford, it is usually one of the best ways of saving, it is nearly always free money; but get the balance right for you between having fun now AND having fun in the future. 

Know what sort of pensions you have, do they guarantee the benefits and how much they grow or is there a pot of money you can use flexibly and perhaps pass on to your children.

Don't forget to plan for your spouse or partner, if one of you unfortunately dies early or if you both live long enough to need care.

niftythrifty33

@Bostonerimus1 I think it's more a percieved lack of knowledge and also understanding the jargon, though I could work on that myself. I pay into a local government sceme and my husband has a basic work pension plus private pension that I don't think is worth much. Savings are in a normal savings acct with good interest. Thanks for your kind words about paying off the mortgage. We worked hard at overpaying. 

I think from these great replies it seems I need to read more and ask questions on this forum. Thanks so much everyone

MEM62

Bostonerimus1 said:

Having a paid off mortgage by 50 shows that you have some financial skills

Or does it?  If they have cleared their mortgage by making overpayments instead of ploughing that extra cash into their pensions they are not likely to be in as good a financial position now as they could have been by giving priority to their pensions.  

Albermarle

nd my husband has a basic work pension plus private pension that I don't think is worth much.

Your husbands work and private  pensions are almost certainly Defined Contribution ( DC) pensions. These are completely different to your LGPS Defined Benefit ( DB) pension. This is something you should be clear on as many people get them confused although they are like chalk and cheese.

Your husband should find out ( unless he already knows) whether his employer will add a bigger % if he adds a bigger %, as this is a big incentive to add more.

kempiejon

niftythrifty33 said:

Hello, I'm not sure whether I should be posting in here or in the savings channel as it involves both. We are very early 50's with mortgage paid off and some savings.

My question is, should we have a financial advisor when it comes to retirement planning? It's a bit of a minefield working out our forecast. I'm happy to learn everything I need to but do most of you pay a financial advisor to do this? 

Thanks in advance

When it comes to retirement planning there's quite a lot an interested individual can do. Checking you work pensions if any, your NI record, what about your costs and out goings, inheritance planning if relevant?
Some people have no interest in self reliance and get someone in to do the job. Much like I prefer to mostly DIY with jobs about the house, garden, car,  retirement and financial planning others value their own time, know their limits and subcontract the jobs out. An independent financial advisor will do the work for your a fee.

Early 50s you say, when did you hope to retire? I made my plan in my 30s to be able to treat work as an option activity by your age.

Bostonerimus1

MEM62 said:

Bostonerimus1 said:

Having a paid off mortgage by 50 shows that you have some financial skills

Or does it?  If they have cleared their mortgage by making overpayments instead of ploughing that extra cash into their pensions they are not likely to be in as good a financial position now as they could have been by giving priority to their pensions.  

Paying off a mortgage shows an ability to budget. While there is constant debate on the relative merits of paying down a mortgage or investing that money, the OP has chosen to "do a bit of both" as they also have pensions and some savings. They are in a far better position than many people and that is worth some praise.

Bostonerimus1

niftythrifty33 said:

@Bostonerimus1 I think it's more a percieved lack of knowledge and also understanding the jargon, though I could work on that myself. I pay into a local government sceme and my husband has a basic work pension plus private pension that I don't think is worth much. Savings are in a normal savings acct with good interest. Thanks for your kind words about paying off the mortgage. We worked hard at overpaying. 

I think from these great replies it seems I need to read more and ask questions on this forum. Thanks so much everyone

I would start by fully understanding your local government pension and your spouse's pensions. Start online and look at your account statements and understand terms like Define Benefit pension and Defined Contribution pension and the differences in how they are funded, invested and how they pay out when you are retired. Once you understand your current situation you will be better placed to know if you need help. Do this with your spouse, get a bottle of wine and designate a a few evenings and weekends to do your research and ask each other questions. Also do a budget to see where you spend money and come up with a spreadsheet that estimates your net worth ie all your debts and all your assets like house, bank and pension/investment accounts.

Linton

niftythrifty33 said:

Thanks for the good advice. @Moonwolf do you mind explaining what mistakes you made, no problem if it's too personal.

@Marcon I think we just need someone to look at our pensions and tell us how much we'd get at different ages of retirement and how much difference it would make to pay in extra (or not). Also, whether to put our savings into something other than a savings account. We don't have much so I think I could work that out myself but the pension/retirement forecast seems really complicated.

Forecasting cash flow in retirement is in principle very straight forward.  You just make reasonable assumptions about the numbers you dont know and put together a year by year plan based on annual income and expenditure using a spreadsheet.  However you need the knowledge as to what is reasonable and the numeracy/skills to create a spreadsheet.  If you dont have these then I suggest you talk to an IFA.

There are some possibly useful videos on Youtube.  James Shack is good on the basics of pensions and retirement in my view, as is PensionCraft.  You need to be aware that the laws, tax and investing in general in the US can be quite different to the UK.  James Shack is UK, PensionCraft seems to want to cover both but not too successfully in my view.

Pat38493

If your pension is all, or mostly, in a a local government defined benefit scheme, and your husbands pension is small, an IFA is unlikely to add enough value to be worthwhile.  Those kind of pensions pay out according to your work history and salary so there is nothing in IFA can really do to change it.

First you need to find out from LGPS what you actually have in terms of entitlements and options, and they should be able to tell you this (there are also some specific threads on these boards about LGPS pensions from time to time).  

Regarding your husbands pension it's a good idea to find out exactly how much he has in total and the type of schemes he is or was part of.  If he has had the pensions for a very long time they might be worth more than you both think.