Financial planning takes time, often decades, to show its results. In the long run, wealth goes to those who have a plan – and a good advisor is the best way to make a smart one. Those with planners do better than those without.
Some professionals know immediately when their work fixes the problems for their clients. An electrician finds a short in the lighting system and restores power. An auto mechanic replaces a carburetor and the motorist drives away. A doctor prescribes just the right medication and the patient gets well. An attorney wins a lawsuit.
In other professions, the effect on clients isn’t as obvious or easily measured. For a therapist, changes in a patient’s behavior don’t happen overnight. Similarly, a minister has no way of knowing the full impact of a sermon. Neither does a financial planner see the immediate results of many recommendations, especially in retirement planning where judging success takes decades.
This is why I was intrigued when I read about recent research titled “A Comparison of Retirement Strategies and Financial Planner Value.” The study, published in the November 2014 issue of the Journal of Financial Planning, provides evidence of the value of using financial advisors.
The researchers analyzed data from the National Longitudinal Survey of Youth, a random sample of 12,686 people who are now in their late 40s and early 50s, and found that those who engaged a comprehensive financial planner had significantly more income, net worth and retirement savings.
The study shows that 70% of U.S. households lacked a retirement plan. That didn’t surprise me, since the majority of Americans live month to month. Of course, they don’t evaluate their retirement needs if they have no savings to evaluate. Retirement income for them will consist of their Social Security plus, if they are fortunate enough, their company or government pension.
Of the remaining 30% of households that had planned for retirement, 13% did it by themselves. Of the rest, 11% used comprehensive financial planners, and 6% worked with non-comprehensive advisors such as financial product salespeople.
Those who had a financial advisor accumulated much more retirement savings than those in the other groups, the research found. This result still holds after controlling for the economic differences. At the median, having a planner resulted in $20,777 more than not.
Interestingly, those who did their own planning had more retirement savings than those who used a non-comprehensive advisor.
Not only does professional advice give you better investment returns. Assessing your retirement needs is an important part of the value a comprehensive financial planner provides. Apparently, those with a clear idea of how much money they need for comfortable retirement living are more likely to save.
No shortcuts exist when saving for retirement outside of winning a lottery, but using professional advisors boosts your chances of realizing your retirement goals. The rest is time and patience.
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Rick Kahler, MSFP, ChFC, CFP, is a fee-only planner and author. He is president of Kahler Financial Group in Rapid City, S.D. Find more information at KahlerFinancial.com. Contact him at Rick@KahlerFinancial.com, or 605-343-1400, ext. 111.
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