MONEY MONDAY 5/7/18
You just had, or are expecting, a life-changing event: Getting married (or re-married), going through a divorce, facing a death in the family, inheriting a large sum of money, starting or selling a business, preparing for retirement, receiving a life-challenging medical diagnosis — the list goes on. A financial planner not only can help assess how that life-changing event may impact your finances, he or she also can help you put a plan in place to handle that change with minimal financial disruption.
You have major goals you want to accomplish: A financial planner can take a "big-picture" view of your financial situation and advise you on whether to focus in on a particular goal, or whether you should be simultaneously working on multiple goals — and come up with a strategy to do this.
The stock market worries you: This may mean that you don't have a real plan for your investments and just pick stuff at random to buy. A financial planner can help create a cohesive, diversified strategy with an investment mix that makes sense for your risk tolerance. Plus, a trusted planner can be your "emotional buffer."
You're getting closer to retirement and have no idea if you're on track: As you get closer to retirement, the less room for error you have! So don't chance it! A financial planner can see if your savings and investments have you on track to retire well... and can help you make important decisions like when to take Social Security.
You're working with someone who only focuses on investments: Sure, investments are important… but they're only part of your financial life! If your current advisor isn't also looking at tax strategies, college savings strategies, life insurance, estate planning, and budgeting, you're missing out.
Quite honestly, if you're managing your money yourself, you need to ask yourself if you have the "5 Ts:" the time, the temperment, the talent, the tools, and the training. If you're missing just one of these from the equation, you should probably look for help.
HERE'S THE SIMPLY MONEY POINT
Take a look at where you are in life. If you think it's time to get guidance, we recommend working with a Certified Financial Planner or a Chartered Financial Consultant.
Every Sunday, Simply Money is answering your money questions in the Cincinnati Enquirer.
Sarah in West Chester: My mom is 89 and recently widowed. I'm concerned that she's going to become a target for scammers. How can I protect her?
#3: Personal finances
So you've been told to save, save, save for retirement - and that's good (we hope you're doing that). And the most common way you're probably saving is in your 401(k). But you need to remember the "deal" you're making with an account like this.
Remember, a traditional 401(k) is what's called a "tax-deferred" account. This means that you get a tax break now, but you still eventually have to pay ordinary income taxes on the money (usually in retirement). This is the deal. Tax break now, pay taxes later. Same goes for a traditional IRA.
Example: If you have $100,000 in your 401(k) right now, you don't really have $100,000. If you're in the 25% tax bracket, you only really have about $75,000
It can be so easy to get caught up in saving, and only thinking about the short-term tax break, that you forget to think about the long-term consequences. While many of you are saving for retirement, you're not planning for the "distribution phase."
So how should you be thinking about this instead? Just like you diversify what kind of investments you have, Simply Money wants you to think about "diversifying" the tax treatments of your investments.
This means, in addition to having tax-deferred accounts, you also use an after-tax account… and even a taxable brokerage account.
An after-tax account is a Roth IRA or Roth 401(k). No tax break now, but the money grows tax free. If you follow all the rules correctly, you'll be able to take out gains and not pay taxes!
Example: If you have $100,000 in your Roth 401(k) right now, you have the full $100,000
One of the big perks of a taxable brokerage account is that you pay capital gains taxes on gains - and these have historically been lower than ordinary income tax rates. Also, no contribution limits or withdrawal penalities
Health Savings Accounts are another great way to save and spread out your tax burden - triple tax benefits! Can't beat it!
HERE'S THE SIMPLY MONEY POINT
You can't control what tax rates are going to be in the future - but you CAN control WHEN and HOW you pay taxes on your investments.