As Planning with Purpose begins preparing for our yearly financial planning meetings, I thought it would be appropriate to remind everyone what our definition of being your financial planner is. We have many terms for the individuals who work in the industry – stockbrokers, wealth managers, registered representatives, advisors, agents, and planners. The term financial planner is limited to those who have earned the certified financial planner (CFP) designation. CFPs are required to be fiduciaries and act in the best interest of our clients. I believe many individuals who work in the industry act as fiduciaries even without that designation.
There are specific actions that I feel are the responsibility of the financial professional in your life. A few years ago, I wrote “50 Common Actions of a Professional Planner” – this pamphlet is available in our office if you would like to see the full version again.
Investing your dollars – for retirement, for college, for funding other goals such as a house down payment, a wedding, or a once-in-a-lifetime trip is important. Investments need to be monitored to ensure an appropriate asset allocation for your risk tolerance level. Most everyone needs dollars across the spectrum of risk – fixed income, and large, midcap, small-cap, and international stocks. The percentages in each category change depending on your age, ability to accept risk, overall net worth, and income needs. The financial planner’s responsibility is to determine how your dollars are to be invested based on these needs.
Investing also must consider the impact of inflation and taxes. Inflation at 2% to 3% over twenty to twenty-five years will cause the costs of living to double. If you retire at age 55 and live to be 90, you could see a gallon of gas go from the current $3.75 to $15.00 per gallon. Your investments and income need to keep up with these rising prices if you want to maintain your standard of living.
When you consider the impact of taxes, we believe the key to investing is making sure that you outpace both inflation and taxes over time. We should be looking at options to minimize taxes – both now and in retirement. These can be benefiting from Roth contributions and conversions, taking advantage of capital gains rates, tax harvesting for losses, and potentially tax-free investment choices.
The purpose of investing is to enable the achievement of financial goals. As a financial planner, we can assist in helping you formalize those goals. We want to help you prioritize and determine realistic goals. We often find we are asking the question, “what does retirement look like” and it can be the first time individuals think about what they will do in retirement on a day-to-day basis.
Meeting your financial goals mean you have the desired income and assets to achieve your goals. Helping you manage college costs without jeopardizing other goals is part of our responsibility. Some individuals need help with cash flow and debt management to find the dollars to invest for those future goals. Others should expect our help with determining when to take Social Security, especially when coordinating benefits between married individuals. We should be assisting you in determining pension options, joint versus single options.
Your pension and/or Social Security income may not fully meet your annual income needs in retirement. Recommending how to coordinate distributions between various types of accounts, both retirement and non-retirement accounts, is part of the responsibility of a financial planner. Planning for your required minimum distributions (RMDs); determining the amounts and the best places to take your dollars from should be part of the assistance provided. If it is your desire, we potentially find additional sources of guaranteed income. This coordination must account for the tax and inflation impact as well as the asset allocation and risk tolerance of the investments.
Investing, taxes, inflation – another area that a financial planner should be assisting their clients with is estate planning and legacy desires. Most financial planners cannot create legal documents. We are available for discussions regarding wills, trusts, and power of attorneys. We can make suggestions on how to divide or transfer assets in a manner that considers your children’s financial abilities and needs. We can help ensure that assets are titled and registered correctly to transfer assets based on your desire. I believe it is our responsibility to make sure that your beneficiaries are kept up-to-date.
Trusts can serve many purposes. We can help determine if one is appropriate for you – to protect assets, minimize future estate taxes, manage an inheritance for spendthrift or special needs children, or avoid needing to probate assets.
The final area that financial planners should be involved in is helping to make sure that you have the correct insurance. Life insurance has a place – making sure clients have the correct type of insurance and the right amount while not overcommitting dollars to premium payments. It is hard to plan your retirement income without considering the potential impact of long-term care issues. We should discuss how you will manage long-term care expenses, whether long-term care insurance or using other options. A financial planner should, at a minimum, have basic Medicare, health, homeowners, and auto insurance conversations with their clients.
Many financial planners have a specialty area. Some are also estate attorneys. Some are or have been property and casualty insurance agents or life insurance agents. They can be tax practitioners like myself. Financial planners must have knowledge in many areas. If we do not possess expertise in an area, we need to have a referral source to ensure we can get our clients the help they want or need.
All these areas – investing, taxes, inflation, financial goal setting, cash flow, debt management, income distribution planning, insurance, and estate planning are part of overall financial planning. We believe a financial planner should be talking with you about all these subjects – especially the interaction between areas. Often, there are competing needs for dollars. Informed decisions are crucial to making sure you are comfortable with the choices made. Financial planners can be critical in helping you understand the ramification of life-changing events such as getting married or divorced, becoming a widow or widower, blending families, having children, parents passing away, or changes to employment situations.
We believe developing a trusted relationship with your financial planner is key to sound financial planning. You need to feel that your financial planner is making recommendations and suggestions, knowing who you are, what you need, and your desires. You must believe that your financial planner’s level of knowledge and expertise matches your needs.
I hope that you feel we are meeting your financial planning needs. By highlighting some of the actions here, I hope that if you or someone you know needs help in any area, you would let us know and allow us to be of service to you.