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Ask: “At 63, I’m worried about my retirement income. I retired at age 60, with a passive income of about $45,000 per year, and started receiving $1,500 per month in Social Security at age 62. My income comes from rental properties with long-term leases that should last until I am seventy. I managed to put about $200,000 into an IRA. My mortgage is about $450 a month, plus taxes and insurance, with 10 years left on it. What options do I have to expand my portfolio and guarantee my financial security for the next 15 years?”
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Answer: You have a lot to consider here — and you may want a financial advisor to help you make a plan to grow and sustain your money during retirement, professionals say. But before we get into the question of whether or not you need a financial planner, let’s first take a look at your situation and see what risks you may be facing and what you need to take into account.
Some of your biggest risks are general inflation, tenant risk (the chance that a tenant will be negatively impacted) and long-term care costs, says Mark Struthers, a certified financial planner and founder of Sona Wealth Advisors.
Inflation risk: To beat inflation, you need to be sure your money is hard at work. Look at how that IRA is invested and whether it aligns with your long-term goals, suggests Ryan Haiss, a certified financial planner and co-founder of Flynn Zito Capital Management. “I often see DIY investors being overexposed to certain sectors, such as technology, or taking on more risk than they realize,” says Haiss. “While that can work well in strong markets, it can be harmful during recessions. An advisor can help you assess your investment strategy to ensure it aligns with your long-term goals.”
Even though you’re 63, that doesn’t mean you have to put all your money in a savings account. “In general, you should have a diversified portfolio of stocks and bonds, not just cash,” says Lauren Lindsay, CFP at Beacon Financial Planning. This guide can help you get advice on how to invest in your sixties.
Increase retirement income: Since you’re concerned about your retirement income, it’s worth exploring how you can reduce your monthly costs. You don’t mention your total monthly expenses, but cutting back on things like dining out, entertainment or travel can have a significant impact on your bottom line. Since you’re already retired, it’s difficult to increase your income, but you may be able to find a part-time job that won’t disrupt your Social Security benefits.
Another question you may be asking is: Do you need to pay back your mortgage to free up more money? Probably not, unless your mortgage interest rate is really high. “The question worth asking is what interest rate you pay on your mortgage,” says Kashif Ahmed, CFP and founder and president of American Private Wealth.
Risk of rental properties: Your real estate is also something you need to take into account. “Your long-term leases may give you some assurance that you will have an income stream, but it may also mean that your costs of maintaining the property may increase faster than you can increase the rent,” says Struthers. While there is no one-size-fits-all rental maintenance budget, applying the 50% rule can be helpful in determining how much money to set aside for potential maintenance or repairs. Basically, you would set aside half of the annual rent to cover operating costs or any emergencies.
Alonso Rodriguez Segarra, CFP and founder and CEO of Advise Financial, says you may want to work with a financial planner who can “help you run a number of scenarios that will allow you to analyze whether it makes sense to own one of the properties in sell over time. They would do this “by calculating the ratio between the net return you get for the rent and the amount of money you have invested and considering whether you can earn more in the future with another type of investment,” he adds .
Long-term care costs: It’s also worth considering how long-term care costs may affect you. According to the March 2024 Fidelity Retiree Health Care Cost Estimate, a single person age 65 may need about $157,500 after-tax savings in 2023 to cover health care costs in retirement – which works out to about $315,000 for a couple. That said, there are several ways to finance this care, from self-financing to purchasing long-term care insurance, integrating a hybrid of life insurance and long-term care, or relying on government programs. This guide can help you explore your options.
Should you hire a financial advisor to help you?
In general, seeking the help of a professional can be especially important as you get older. “Ultimately, as with almost any situation where a decision needs to be made about whether to hire a professional or not, it comes down to your own comfort level that you have the expertise necessary to handle those issues yourself, and tend to take the time to do that,” says Michael Kitces, chief financial planning expert at financial planning site Nerd’s Eye View.
Struthers adds: Even if you’re quite financially savvy, “having a second opinion can give you more confidence — and you don’t know what you don’t know.”
If you choose the advisor route, look for a trusted person. “They can’t take commissions [which are] mostly from insurance products,” says Struthers. “This can ensure that bad incentives do not affect the advice. An insurance product may be a good fit for your situation, but you want your advisor to be paid the same whether or not he recommends it.”
You may want to consider a CFP because they complete extensive training requirements, pass exams, gain thousands of hours of work-related experience, and must fulfill a fiduciary duty. “They can help you structure and perhaps manage the investment portfolio that will lead you to financial security over the next fifteen years. They can also look at tax planning options to analyze whether you need to do some Roth conversions before your RMDs kick in,” says Segarra, who adds that some of them can also analyze and provide direction on your real estate portfolio.
Revamping your finances is also an option, but you will want to thoroughly evaluate what it would look like to do so before you decide to move forward. (Here are several types of people who do not need a financial planner.) You can also hire a professional to help you create a financial plan and from there go the do-it-yourself route once you’re armed with a road map. A one-time plan that will likely cost between $1,500 and $7,500, depending on where you are and the complexity of your finances, professionals say.
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