My question is I am contemplating retirement next year and I opted for the lump sum buyout from my pension plan. Typical buy outs range between 1.3- 2 million. Some of my retired colleagues have used the services of Vanguard or Fidelity to manage their retirement account. Some have even split the difference between the two.
There are many choices out there I am unsure which direction to go. I do my own investing in a Etrade account but I am hesitant to mange my retirement as I am a engineer and not a financial expert. So in summary how do choose a financial manager to fit ones situation.
Having Vanguard or Fidelity manage your retirement assets is a great way to go. They have done this for many people for many years and have a very simple formula they apply for making sure your asset allocation is appropriate for your risk tolerance, age, and spending level. My personal preference is Vanguard since they are known for their low-cost index funds while Fidelity leans more toward active management which statistically is likely to underperform index returns, but you really won’t go wrong with either. I would advise against splitting your money between the two. Your advisor will be better able to allocate your assets properly if he can see your entire portfolio.
There’s also the option of having your money managed by an independent financial advisor like an RIA (registered investment advisor) or CFP (certified financial planner). The advantage to using a financial advisor is that they can advise you globally about minimizing taxes and estate planning while the Vanguard and Fidelity representatives will likely not cover anything outside of direct investment planning. The disadvantage to using a financial advisor is that many are compensated for the products they recommend to you so you need to be very careful to choose an advisor who is “fee-only” so that he doesn’t have any financial incentive to push products that aren’t in your best interest. We have a tool to help people find a fee-only financial advisor in your area (we don’t get paid for these recommendations). I would contact a few and go with the one you feel most comfortable with.
Unless there are other factors you haven’t mentioned, your situation is actually very straightforward and you really can’t go wrong with Vanguard, Fidelity, or an experienced fee-only CFP. So the important thing is to choose someone you feel really comfortable with and with whom you can really communicate. Look for someone who is willing to explain not just what they recommend but why. Make sure they are professional, patient, and trustworthy. Don’t be afraid to interview a dozen or more. This is the start of a long-term relationship so making sure you find someone you can work with for a long time is worth the effort.
Regardless of which option you go with, you’re in a great position to start retirement with a seven figure nest egg! Congratulations!
About the Author
Joanna D. Pratt, CFA is an experienced institutional investor. She holds a bachelor’s degree in economics and certificate in finance from Princeton and an MBA from Stanford.
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