Fifty-seven percent of companies that have managed-fund options—typically, 401(k) plans—now make investment advice available to retirement-plan participants. That’s up 12 percentage points since 2006, and the percentage is expected to continue to rise this year, according to David Wray of Plan Sponsor Council of America, which provides information and services to contribution-plan sponsors. Should you fork over your money for such advice?
Paying for advice makes sense only if you are 10 years or less away from retirement or if you have at least $250,000 to invest, says Nicholas J.D. Olesen of The Philadelphia Group, which is a wealth-management consultancy. He says that if you are that close to retirement, a financial planner has the expertise to do a comprehensive analysis to determine the different scenarios that are involved in how much you have to save and the level of risk that you’re willing to incur.
We believe that you’d be better off saving the money that you’d spend on advice, regardless of age, and do your own calculations that are based on historical stock- market performance.
However, you must keep in mind that if you invest in an age-based fund, it’s your responsibility to monitor the components of the fund and their allocation. Age-based funds select investments that are based on the number of years that you have remaining until retirement, which dictates the aggressiveness of the investments. But you don’t need a financial planner to tell you that if you’re older, you should make sure that your money isn’t in an investment that has a higher risk than you can recoup if things go wrong.
This story was revised to clarify comments that were supplied by Nicholas J.D. Olesen of The Philadelphia Group.