When to call it quits with your financial adviser

  @Money March 21, 2013: 6:23 AM ET
NEW YORK (Money Magazine)

I've worked with a financial adviser for more than 30 years. But I have a better understanding of finance now and more time to manage my money since I'm retired. So I'm thinking of taking my savings out of the hands of the professional and investing in a couple of funds on my own. Do you think that's a good idea? -- M.C., Indianapolis

I'm all for people taking charge of their finances. Assuming you know what you're doing and plan to manage your money responsibly, I certainly wouldn't want to discourage you.

At the same time, though, you've had a system that's presumably worked for you for many years. So before you make any big changes -- and going from working with an adviser to flying solo at this point in life is a momentous one -- there are several issues you ought to consider.

First, you need to understand that managing your finances isn't just a matter of picking a couple of good mutual funds. True, developing a reasonable investing strategy is important. And you may be able to improve your retirement prospects significantly if you focus on solid funds with low fees, like the ones on our MONEY 70 list of recommended funds.

But more important than the funds themselves is building a coherent portfolio with a diversified mix of assets that jibes with your needs and risk tolerance. Hunker down too much in bond funds and cash and you might not earn high enough returns to generate enough income. Go pedal-to-the-metal and your nest egg could get whacked so hard in a market downturn that it might never recover.

Besides, there are plenty of issues that can have an equal, if not greater, impact on retirement security than investing, starting with when to claim Social Security.

Related: Don't let a fear of stocks cost you in retirement

Generally, it makes sense to postpone taking benefits until full retirement age or later, since the size of your payments increase by roughly 8% for every year you delay until age 70. But the ideal age can vary depending on lots of factors, including your health and how much you saved. If you're married, the decision can be even trickier, as there are a variety of different strategies that could be best depending on you and your spouse's ages, earnings history and retirement goals.

Another crucial aspect of managing your finances in retirement is figuring how much of your nest egg you can afford to tap each year. You want to be able to withdraw enough to live comfortably, but not so much that you run the risk of going through your stash too early in retirement. And aside from the amount you can withdraw, there's also the question of which assets the money should come from: those in taxable accounts, tax-deferred accounts like 401(k)s and IRAs, Roth IRA accounts, or a combination?

There are tools and services that can help you deal with these sorts of issues. For example, T. Rowe Price's new Social Security Benefits Evaluator can help singles and couples decide on a claiming strategy depending on their goal (getting the maximum lifetime benefit, minimizing the drop in income for the surviving spouse, whatever).

$2 million in savings - should I splurge now?

Similarly, Morningstar's Asset Allocator tool allows investors to gauge the risk and reward of different mixes of stocks and bonds. And this Retirement Income Calculator can help retirees arrive at a sustainable level of withdrawals from their nest egg.

Question is, though, will you actually use such tools and perform the necessary analysis -- and continue to monitor your finances regularly throughout retirement?

If the answer to those questions is yes, then by all means go for it. But be honest. You'll do yourself more harm than good if you embark on this venture overconfident and without a realistic idea of what you're getting into.

Related: 3 steps to creating a retirement plan

I'll offer two final suggestions. First, if you decide you want to go it alone, try this little experiment before parting ways with your adviser. Carve out a piece of your nest egg -- say, 25% or so -- and invest that money and manage withdrawals from that sum on your own for, say, six months to a year. That will give you a chance to road test your money-management skills. Based on how you do, you can then decide whether you want to go out totally on your own, continue managing a portion of your assets to gain more experience or go back to having your adviser handle your finances.

My second recommendation is that, even if you take the DIY route, you remain open to consulting a pro. For example, if you run into problems or simply want a second opinion about the health of your retirement finances, you can always hire an adviser for an hourly fee or on a project basis -- or for that matter, go back to an ongoing relationship with one.

So take some time to weigh the issues I've raised. This is a big decision. Don't make it a hasty one. To top of page



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