It’s summer time! That means its financial planning season. Financial planning can be a nebulous concept for some. What does it actually mean and what does it provide? One must need money in order to have a financial plan, right?
Financial planning looks at all aspects of your financial life to identify planning opportunities that will enhance your financial condition, and/or identify liability exposure. This is usually done through investment management and retirement planning. It encompasses insurance products, estate planning, education planning, and tax planning, too. Here are 5 reasons you may need financial planning:
- You are saving for retirement – you may think you are doing fine by deferring income you’re your 401k plan for retirement. This is definitely a great strategy and must/should be done, especially if there is employer matching. However, diversification of tax vehicles is also very important for financial planning. Tax vehicles means Traditional IRA, or Roth IRA, or Post Tax account. Using many types of accounts is important and opens the door to many other tax planning opportunities.
- You lost your job, or are changing professions – With these major transitions comes major financial planning opportunities, like doing a tax free Roth conversion, taking capital gains at 0% tax rate, or replacing lost employer provided life insurance.
- You are on the cusp of retiring – If you are 5 years or closer to retiring this is the prime time fine tune your retirement strategy. Do you have enough saved to retire? What accounts will you tap first for retirement income? Not tapping the right account at the right time can be a costly mistake. For example, simply claiming your Social Security benefit at age 66 is not always the best strategy.
- You are having a baby, or getting married – This necessitates a review of your life insurance policies to see if you are properly covered for your family needs. An employer provided life insurance policy is usually inadequate at best, and lacks portability options. Yes, you can usually take it with you when you leave your employer, but it will cost you dearly!
- You have an estate (net worth) in excess of $5.45M as a single person, or $11M as a married couple. You need to plan so your heirs don’t wind up paying Uncle Sam a big chunk of inheritance tax.
There are many other reason for financial planning that didn’t make my top 5 list. Suffice it to say, if you have any financial planning questions, that is the proper time to contact a financial planner! Next week I will address how a financial planning office works, or to be more specific – the process, what is involved.