When it comes to your financial plan, it’s hard to know all of the answers. That’s why it’s important to have a financial advisor to help guide you and make sure your decisions provide the greatest long-term value. Here’s how I answer the five most common questions from clients looking to accumulate and preserve wealth.
- What should you save for first — your kids’ college education or your own retirement? The answer may surprise you.
Most people go with “education,” and we can see why — after all, there’s less time to save. But the correct answer is actually your retirement.
Why? Because there are tools available to fund a college education, but nothing can compensate for oversight or a shortfall in retirement savings. - How can I keep track of priorities and avoid conflicts?
A plan that takes a holistic view of your financial picture and long-term goals is the best approach:- Assess your needed rate of return and risk tolerance.
Will you benefit most from conserving existing wealth, or do you need to take additional risk to achieve greater growth? - Plan for a long, happy retirement.
Longer lifespans mean you’re likely to have decades to enjoy the fruits of your labor. - Adopt a long-term perspective.
Rapid moves in and out of investments can be a losing proposition. Remember, that generally, time in the market beats timing the market.
- Assess your needed rate of return and risk tolerance.
- Do I need an estate plan?
Yes! Estate plans reflect, in writing, exactly what you want to happen with your accounts, assets, and personal items after your passing. Creating a well-thought-out plan will greatly benefit your loved ones who survive you as well as allow your estate to bypass the sometimes expensive and lengthy probate process. At a minimum, your plan should include a will, revocable living trust, and financial and medical powers of attorney. You may also want to consider a professional trustee that can take responsibility for the myriad of technical details and help to preserve family harmony.
For those who have plans in place, make sure they’re up to date. Estate tax law changes over time, as do your preferences, so it’s important to make sure the language in your plan is current. This same advice applies to aging parents, too! - What's the best way to plan for education expenses?
The best place to save for college is often your state’s 529 plan, which may allow for state tax deductions as well as tax-free growth. However, any money that goes into these plans must be used for education purposes (with the exception of up to $10,000 of the fund, which can now be used toward paying off student loans, thanks to a SECURE Act provision), so it’s important to consider the amount of funding that’s truly needed to avoid incurring taxes and penalties on non-qualified withdrawals of excess contributions. - Are there steps I can take the reduce my tax burden?
There are! It’s important to pay close attention to your tax situation, and be as efficient as you can. You want to understand potential deductions, review your tax-deferred and tax-exempt savings options, be cognizant of capital gains (especially short term), and employ strategies such as tax loss harvesting. Look to have your financial advisor work in partnership with your tax preparer to help you implement these strategies and plan for the upcoming tax year.
If you have further questions about these topics or anything else related to your financial plan, feel free to contact us anytime. We’re happy to help.
