When people think about partnering with a financial planner, they usually worry about the fees they have to pay their financial professional. While advisor fees can have a huge impact on the performance of your portfolio, many people don’t consider that there is an opportunity cost associated with NOT prioritizing their financial plans. If you are considering creating a comprehensive financial plan, here is why you shouldn’t be putting it off.
The first reason you shouldn’t put off financial planning is that you’re probably not saving as much as you should. That’s not to say that the savings you do have shouldn’t be celebrated. But no matter the amount you have, you need to be sure it will be enough.
If you plan to retire in your mid-60s, your retirement savings may need to carry you through 30+ years. Not to mention rising inflation that could decrease the value of your savings over time and the additional expenses you will likely encounter along the way. A study by the Center for Retirement Research estimated that the medium retirement savings of Americans aged 55-64 is $120,000,[1] yet the average retirement cost is nearly $46,000 per year![2] At that rate, a savings of $120,000 will only last 3-4 years.
The best way to avoid running out of money in retirement is to work with a financial professional to understand what your savings can handle. Contrary to popular belief, you cannot use a multiple of your annual income to determine how much to save. This is why it’s so crucial to plan ahead. The sooner you understand your need, the more options you will have and the easier your goals will be to accomplish.
Another reason not to put off financial planning is that if you don’t start early, you’ll miss out on several tax strategies that take years to implement, including:
If you’re in a high tax bracket, being able to save for retirement with pre-tax dollars is a great advantage because pre-tax contributions reduce your taxable income and ultimately reduce the amount of taxes you owe. This strategy could save you thousands of dollars in taxes each year. The earlier you start, the more you could save over the course of your career.
Roth conversions help to increase your retirement savings and decrease your long-term tax liability by transferring funds from a pre-tax retirement vehicle (traditional IRA) to an after-tax account (Roth IRA). This allows your money to grow tax-free for as long as you’d like, and required minimum distributions (RMDs) are avoided as well.
When it comes to withdrawing from your retirement accounts, how you take your distributions can make all the difference. Each retirement asset (employer-sponsored accounts, Social Security, traditional IRAs, etc.) has different tax characteristics. Creating a withdrawal strategy can help lower your tax burden by structuring withdrawals from each income source in a tax-efficient way.
To properly implement these strategies and more, a long-term understanding of your full financial picture is required. Putting off financial planning can leave you stuck with a huge tax bill that could have been avoided.
While it’s always a good idea to be careful with your money, it does not mean “playing safe” is always the answer, especially when you are starting early. Investing in low-interest more conservative investments, such as CDs, would minimize the growth of your money over time and would result in a lower nest egg. Saving earlier in life affords you the opportunity to invest in moderate to aggressive stocks, allowing for more compound interest growth and affording enough time to recover should the market take a temporary downturn.
When it comes to insurance, you don’t want to wait until you need it and then wish you had it. Accidents can happen to anyone at any time, and not carrying adequate life insurance and disability insurance could have devastating consequences. As you age, buying insurance like life and disability will become more expensive because you are more likely to use those policies. The more you put off financial planning, the more likely you are to get expensive premiums and perhaps not qualify for certain coverages.
It is heartbreaking when vulnerable family members find out their spouse or parent wasn’t carrying adequate insurance. In worst-case scenarios, homes are foreclosed on, family businesses have to be sold, or bankruptcy is declared.
You can avoid these devastating consequences by purchasing adequate life and disability insurance before the worst happens.
Do you feel 100% confident about the myriad of financial choices you make day in and day out? Have you encountered more complexity as your assets have grown? Partnering with a financial professional may help alleviate the stress and anxiety that comes from trying to figure out your finances.
Think about all the time you spend worrying over finances and whether you are saving enough money. Are those thoughts preventing you from making great memories and actually living your life? For many of our clients, the answer is yes. But it doesn’t have to be that way.
Financial planning may help alleviate the stress that comes from not knowing where you stand or how to pursue your goals. It may provide clarity by defining a path from point A to point B, and allowing you to get the most out of your life along the way. If you want to get started working with an experienced professional, schedule a no-obligation introductory meeting by emailing me at daniel.staiger@raymondjames.com or calling (631) 319-6777.
Daniel Staiger is a partner at Matarazzo Staiger Wealth Management and Financial Advisor with Raymond James Financial Services. Matarazzo Staiger Wealth Management is an Independent Practice and our team is committed to helping families, pre-retirees, and union employees build a sense of security and confidence around their financial future. With more than 10 years of experience, Daniel is dedicated to providing trusted advice and tailored solutions that help his clients realize their financial potential. He is known for building relationships with his clients so he can better understand their values and the goals they want to pursue. As a CERTIFIED FINANCIAL PLANNER™ and Chartered Retirement Planning Counselor℠ professional, Daniel specializes in serving union employees, such as tradespeople and teachers, with well-thought-out guidance and a personal touch. When he’s not working, Daniel spends his time pursuing interests such as guitar, volleyball, golf, and cooking. He is also an active member of his church. To learn more about Daniel, connect with him on LinkedIn.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.
Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.
Any opinions are those of Daniel Staiger and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.
These policies have exclusions and/or limitations. The cost and availability of life insurance depend on factors such as age, health and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition if a policy is surrendered prematurely, there may be surrender charges and income tax implications. Guarantees are based on the claims paying ability of the insurance company
[1] https://smartasset.com/retirement/average-retirement-savings-are-you-normal
[2] https://www.financialsamurai.com/the-average-spending-amount-in-retirement-is-surprisingly-high/
