The Benefits of Financial Advice in Retirement Planning

Taking professional financial advice in the years leading up to retirement can significantly improve retirement outcomes. Studies have consistently shown that individuals who seek financial advice tend to have larger pension pots and improved financial well-being in retirement.

Quantified Benefits of Long-Term Financial Planning

Increased Retirement Savings

A study by the International Longevity Centre UK found that those who received financial advice were on average £47,706 better off in retirement than those who did not. The same study reported that affluent individuals who sought advice saw an average increase in their pension wealth of 24% compared to those who did not take advice.

Improved Financial Literacy

Research by Vanguard found that advised clients scored 22.8% higher on financial literacy tests compared to non-advised individuals.

Enhanced Retirement Readiness

A study by Morningstar showed that comprehensive financial advice can add up to 22.6% more income in retirement compared to individuals who manage their finances independently.

Better Investment Diversification

According to a report by Legg Mason, advised investors had more diversified portfolios, with an average of 10 asset classes compared to 3.6 for non-advised investors.

Increased Confidence and Reduced Stress

A survey by Royal London found that 44% of those who took financial advice reported feeling ‘very confident’ about their retirement prospects, compared to just 32% of those who had not sought advice.

Overcoming Biases in Retirement Planning

While the benefits of financial advice are clear, it’s important to recognize that our own biases can negatively impact retirement planning:

• Overconfidence Bias: Many individuals overestimate their ability to manage their finances, leading to suboptimal decision-making.
• Present Bias: The tendency to prioritize short-term gains over long-term benefits can result in inadequate retirement savings.
• Anchoring Bias: Fixating on a specific number or idea about retirement can prevent individuals from adjusting their plans as circumstances change.

But there are three more important reasons for using a financial planner to help with your retirement planning:

1. You can’t read the label of the jar your in. You have blind spots that you just can’t see. People don’t engage me because they can’t do what I do themselves. Many of them can. They work with me because I am not them and I’ll see things about them that they just can’t see about themselves.
2. You have sub-conscious beliefs about the world that may be incomplete or just plain wrong. They drive the majority of your decision making behaviours. I can point them out and help develop a different way of thinking. I can’t change your beliefs, but I can help to implement new behaviours that lead to different, better results that might re-shape beliefs over time.
3. This is perhaps the biggest benefit – I’ve done this with lots of other people already. So I’m experienced with helping people transition from work into retirement. Whilst every situation is unique there are a number of common themes when it comes to helping people retire successfully.

Oh, and as a regulated adviser, if things go wrong I’m responsible. If you do it yourself and things go wrong the buck stops with you.

Actionable Ideas to Improve Retirement Outcomes

Basic:

• Start saving early and consistently, even if in small amounts.
• Educate yourself about basic financial concepts and retirement planning strategies.
• Seek free financial advice from government resources or workplace pension providers.

Intermediate:

• Engage with a financial planner for a comprehensive retirement plan review.
• Diversify your investment portfolio based on your risk tolerance and time horizon.
• Regularly reassess your retirement goals and adjust your savings strategy accordingly.

Advanced:

• Work with a financial planner to create a detailed retirement income strategy, including tax-efficient withdrawal plans.
• Consider advanced estate planning techniques to maximise wealth transfer to beneficiaries.
• Explore alternative investment options to potentially enhance returns and manage risk in retirement.

By recognising the value of professional financial advice and actively working to overcome personal biases, individuals can significantly improve their chances of achieving a successful and financially secure retirement.

How confident are you about your own retirement planning?

If you haven’t completed it already our Retirement Plans & Investments scorecard will give you some invaluable insight on the progress you’ve made so far. It only takes two minutes.

You can do it on your phone by scanning QR code. It’s completely free and you don’t even need to share any of your personal details to get your score. But if you want to, there is the option of sharing your score directly with me in case you want to find out how I might be able to help you with improving your plans for retirement.

Supporting Studies

1. “The Value of Financial Advice” by the International Longevity Centre UK (2017)
2. “Putting a Value on Your Value: Quantifying Vanguard Advisor’s Alpha” by Vanguard (2019)
3. “Alpha, Beta, and Now… Gamma” by Morningstar (2013)
4. “Global Investment Survey” by Legg Mason (2018)
5. “Feeling the Benefit of Financial Advice” by Royal London (2020)