Financial Advisors 101

November 26, 2019

Have you wondered if you need a financial advisor? Are you puzzled about the type of financial professional you need to help with investing, financial planning, selecting insurance, repaying debt, education funding planning, tax planning as well as estate and retirement planning?

Many titles, including robo-advisor, broker, investment advisor, and financial planner are used to describe financial advisors who help clients manage their money and achieve long-term financial goals. Although there is crossover among all groups, and many financial advisors hold multiple credentials, they can be described in general as follows: 

1. Robo-advisors

Robo-advisors use computers to select and manage your investments. Some offer access to human advisors to answer questions, but their primary service is investment management, not financial planning.

Fees start as low as 0.25% of your balance and most charge 0.50% or less. Many have no or low account minimums, so you can start investing with a small amount of money.

Consider whenyou need help investing for financial goals like retirement, but don’t want or can’t afford a more holistic financial plan.

2. Online financial planning services

Relatively new to the market, these services offer investment management in conjunction with virtual financial planning. Clients typically meet with financial advisors by video or phone and receive comprehensive financial plans.

Fees, based on how much money is overseen for you, are described as “assets under management,” or AUM, that might range from 0.25% of your account balance to 1% or more, depending on the type of advisor you choose. 

Consider when you are interested in investment management, a comprehensive financial plan, and ongoing access to financial planners for less than the cost of a traditional in-person advisor. 

3. Traditional financial advisors

Working directly with clients to help them meet their short- and long-term financial goals, traditional financial advisors recommend specific investments and insurance products and may provide tax advice. In most cases, you’ll work with an advisor in your local area.

Fees will be based on a median financial advisor fee of about 1% of the assets managed for you, although some charge by the hour or have a set rate per service. Some require a minimum balance, such as $250,000 in assets.

Consider when you want specialized services, your situation is complex, or you want to meet your financial advisor in person.

4.  Brokers

Brokers work for broker-dealers—firms in the business of buying and selling securities (stocks, bonds, mutual funds, and other investment products) for customers. Brokers are required to make “suitable” recommendations for clients.

Fees are typically a mix of commissions and an advisory fee for portfolio-management services. Each firm has its own compensation formula. Statements show advisory fees and transaction costs. 

Consider when you need guidance or broad advice on funds or stocks, or on how to divide your assets among stocks and bonds based on your age and risk tolerance.

Tips for finding the best financial advisor for you

Once you’ve decided which type of financial advisor is best for your situation and budget, you can start your quest of finding an advisor appropriate for you. 

You should interview a few financial advisors before choosing one. Ask questions (including ones about philosophy on financial planning and investing, experience working with clients like you, and the number of years in practice) and check out their credentials and disciplinary history.

To vet a registered investment advisor, visit the U.S. Securities and Exchange Commission database, search an individual’s name, and find information on qualifications, employment history, disciplinary actions by regulators, and criminal convictions. 

When you’re ready to seek a financial advisor’s assistance, prepare by arming yourself with your personal financial data and specific questions to find the right pathway. Then, you can store quarterly and annual reports as well as investment portfolio changes at insureyouknow.org.

How to Save for Retirement by Decade

November 2, 2018

Saving for retirement for daunting. When you’re saving for something like a down payment on a house or a new car, you can have a pretty accurate figure in mind. But when you’re saving for retirement, it’s hard to know how much you’ll need. There are so many unknowns: How old will you be when you retire? Will you have any major health issues? What will your tax rate be? How long will you live?

It’s easy to want to throw up your hands and decide to worry about it later, but that is the exact wrong thing to do. Thanks to the power of compound interest, it’s important to start saving as early as possible and keep saving for as long as possible.

Not convinced? Look at the numbers. Assuming an 8 percent rate of return, if you start investing $250 a month at age 25, you will have $878,570 by age 65. If you start at age 35, you will have $375,073. And if you wait until age 45, you will have $148,236.

It’s time to stop procrastinating and develop a savings plan.

If you’re the type who likes to have an exact target, we have good news. Fidelity Investments has developed age-based milestones to help you travel the road to retirement. By biting off your savings plan into manageable chunks, you can keep track of where you are and feel more confident that you’ll get to where you need to go.

Fidelity recommends you aim for the following targets by age:

• By age 30: Have saved the equivalent of your annual salary
• By age 40: Have saved three times your salary
• By age 50: Have saved six times your salary
• By age 60: Have saved eight times your salary
• By age 67: Have saved 10 times your salary

The ultimate goal is for you to have saved enough by age 67 to be able to maintain your current lifestyle in retirement. Your personal goal may vary; if you’re planning on living modestly in retirement, you may need to save less, and if you’re planning on traveling extensively, you may need to save more.

The age at which you retire also plays an important part in your planning. If you want to retire earlier, at age 65, you will need to have saved 12 times your salary. If you wait to retire until age 70, you will need to have saved eight times your salary.

Those numbers probably still sound daunting, but they’re a good starting point. After all, the hardest part can be taking that first step.There are a number of ways you can save for retirement, including participating in a 401(k) plan offered by your employer and/or contributing to a separate IRA. No matter how you do it, be sure to store all your important retirement documents at InsureYouKnow.org. That way, when it’s time to sit back and enjoy the fruits of your labor, you’ll know how to access all the money you’ve painstakingly saved for years.

What Constitutes a True “Emergency”?

May 28, 2018

You’re a responsible person. You’re saving for retirement. You have a 529 plan set up to help pay for your daughter’s college education. Your car is paid off. You have an adequate amount of life insurance. You’re using InsureYouKnow to make sure your loved ones know how to access your important documents and financial information if needed. And you have six months of living expenses set aside in an emergency fund.

Then the unexpected happens: The alternator goes out in your car. It’s going to cost $400 to replace it.

Where do you find the money to pay for it?

If you answered, “My emergency fund,” you may want to take another look at your definition of “emergency.”

Your emergency fund is money you have socked away in case of a major life event, such as a job loss, divorce, or medical issue. This money would be used to cover your day-to-day expenses and bills if needed.

Washington Post columnist Michelle Singletary advocates the use of a separate fund—the “life happens” fund—for those pesky but somewhat predictable expenses that crop up.

“You’ll withdraw money from this fund to pay for unexpected or major expenses that don’t quite fit the dire straits definition,” Singletary wrote. “Car repairs would come out of this account. Start with trying to save $500, ideally increasing to a few thousand.”

Whether you call it the “life happens” fund, the “just in case” fund, or some other term, this fund is for those immediate expenses that aren’t quite catastrophic. These are expenses that result from situations that people often treat as emergencies but that in reality are expected, if irregular, like a broken appliance.

In an ideal world, you’d never touch your emergency fund. You wouldn’t lose your job. You wouldn’t get diagnosed with a major medical condition. You would have a regular, steady income with no major disruptive events in your life. For many people, this is indeed the case. That money sits in an easily accessible savings account where it earns minimal interest but supplies maximum peace of mind.

But even in an ideal world, you’re probably going to tap into your life happens fund fairly regularly. Even the most budget-obsessed person can’t predict every expense that may appear, such as the following:

• A storm blows through, knocking large tree branches onto the roof of your house that have to be sawed apart and hauled away.
• Your dog swallows a tennis ball and needs emergency surgery to remove it.
• Your toddler climbs onto the dishwasher door one too many times and it finally breaks.
• Your aunt dies and you need to fly out for the funeral.

In many of these situations, life is already stressful enough without you needing to scramble to come up with money for the resulting expenses. And you don’t want to tap into your emergency fund because that’s money you never want to touch. The life happens fund is the perfect compromise. Like an emergency fund, it’s kept in a savings account where it’s accessible on a moment’s notice. But unlike an emergency fund, taking money out of it won’t potentially result in your water getting shut off when you suddenly find yourself without an income.

Keep in mind that because you do need to access this fund somewhat regularly, it’s important to replace any money you take out as soon as possible. After all, life happens—and you never know when the next storm is going to pass through town.

Rеtіrеmеnt Plаnnіng

August 31, 2016

Plаnnіng fоr уоur rеtіrеmеnt іѕ nо ѕmаll tаѕk. It rеԛuіrеѕ thаt уоu knоw hоw muсh mоnеу уоu wіll hаvе ѕаvеd uр, аnd hоw muсh уоu wіll nееd реr уеаr fоr еасh уеаr аftеr уоur rеtіrеmеnt. Bоth оf these fасtоrѕ аrе whаt mаkе rеtіrеmеnt fіnаnсіаl рlаnnіng ѕо dіffісult, ѕіnсе уоu hаvе tо kеер trасk оf уоur rеtіrеmеnt ѕаvіngѕ ассоuntѕ аnd іnvеѕtmеntѕ, аѕ wеll аѕ уоur ѕtаndаrd оf lіvіng аnd thе аmоunt іt соѕtѕ tо kеер іt uр.

Thе 403b retirement рlаn іѕ аvаіlаblе tо US rеѕіdеntѕ wоrkіng іn ѕресіfіс ѕесtоrѕ, аnd оffеrѕ аn аttrасtіvе аltеrnаtіvе tо thе uѕuаl 401k. Emрlоуееѕ whо аrе еlіgіblе fоr thе 403b wоrk іn оrgаnіzаtіоnѕ thаt аrе tаx еxеmрt, рublіс ѕсhооlѕ, оr аrе ѕеlf-еmрlоуеd аѕ a rеlіgіоuѕ mіnіѕtеr. Thеrе аrе bеnеfіtѕ fоr bоth thе еmрlоуее аnd thе еmрlоуеr іn сhооѕіng a 403b.

Mаnу соmраnіеѕ uѕе thеіr 403b рlаnѕ tо аttrасt аnd rеtаіn thе bеѕt саndіdаtеѕ fоr еmрlоуmеnt. Onе rеаѕоn whу еmрlоуееѕ bеnеfіt frоm thе 403b іѕ thаt іt hаѕ аn еxсеllеnt mаtсhіng рlаn. Thеrе іѕ аlѕо nо nееd fоr еіthеr thе соmраnу оr thе еmрlоуее tо рау tаx оn соntrіbutіоnѕ thаt аrе gоіng іntо a 403b. Thе recipient оnlу hаѕ tо ѕtаrt рауіng tаx whеn thеу bеgіn tо wіthdrаw fundѕ.

Thеrе is a mаxіmum аmоunt, whісh саn bе раіd іn thаt іѕ ѕеt fоr еvеrу уеаr, аnd employees wіll оnlу rесеіvе thіѕ mаxіmum іf thе соmраnу іѕ dоіng wеll.

It іѕ аlѕо роѕѕіblе tо tаkе оut a lоаn аgаіnѕt thе ассumulаtеd fundѕ іn a 403b, whісh саn bе uѕеful іn аn еmеrgеnсу. Tаkіng оut tуре оf lоаn аnd mаkіng rерауmеntѕ tо іt wіll hаvе tаx соnѕеԛuеnсеѕ, hоwеvеr.

If thе еmрlоуее wіѕhеѕ tо wіthdrаw fundѕ frоm thе 403b bеfоrе thеу hаvе rеасhеd thе еxресtеd аgе оf 59.5 уеаrѕ, thеrе wіll bе fіnаnсіаl реnаltіеѕ. Onсе thе rесіріеnt іѕ оvеr thе аgе lіmіt thеу wіll оnlу bе сhаrgеd tаx fоr thе аmоunt thаt іѕ tаkеn оut, but younger реорlе wіll аlѕо hаvе tо рау аn аddіtіоnаl реnаltу оf 10%.

Pеорlе whо оwn оvеr 5% оf thе соmраnу thаt thеу аrе wоrkіng fоr аrе ѕubjесt tо аddіtіоnаl rulеѕ. Thіѕ іѕ іn оrdеr tо рrеvеnt thе wеаlthіеѕt mеmbеrѕ оf ѕосіеtу frоm uѕіng thе 403b tо ассumulаtе vаѕt аmоuntѕ оf tаx-frее ѕаvіngѕ.

Onсе thе еmрlоуее іѕ оf rеtіrеmеnt аgе thе аmоunt thеу hаvе ѕаvеd іn thе 403b wіll bе dіѕtrіbutеd ассоrdіng tо hоw muсh thеу hаvе ѕаvеd аnd thеіr еѕtіmаtеd lіfе еxресtаnсу. Thіѕ аіdѕ іn dіѕtrіbutіng thе fund in a fаіr mаnnеr. However, іf уоu dо nоt tаkе аt lеаѕt thе mіnіmum рауmеnt аvаіlаblе, уоu wіll bе сhаrgеd tаx оn your 403b ѕаvіngѕ аt a vеrу hіgh rаtе.

Emрlоуееѕ whо аrе еlіgіblе fоr a 403b ѕhоuld tаkе thе tіmе tо mаkе ѕurе thеу undеrѕtаnd bоth thе ѕаvіngѕ thеу саn mаkе оn tаx whіlе thе funds аrе bеіng buіlt uр, аnd thе іntеrеѕt, саріtаl gаіnѕ аnd dіvіdеndѕ thеу саn rесеіvе frоm thе рlаn.