Major life events often come with major financial decisions. A new job is cause for celebration, but how will the switch impact your plans for retirement? Should you make contributions to a traditional 401(k) at your new job or try out the Roth 401(k) option instead?
These answers aren’t always obvious, but thankfully, you don’t have to figure it out alone.
A financial advisor is an expert who can help you create a financial road map custom-made for all the things that make your situation unique. Whether you’re starting a family, preparing to buy a home or launching a new business, a financial advisor can help explain the impact of major life events on your taxes, savings, investments and more.
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9 life events that your financial advisor can help with
Here are nine life-changing events a financial advisor can help with, along with financial planning examples so you can decide if speaking with an advisor is right for you.
1. A pay raise
Getting a raise at work or landing a higher paying job can open new doors. But it can be tough to know which financial door to walk through first.
A financial advisor can help you decide if it’s time to bump up your retirement account contributions at work, and align your financial plan with your new, higher salary. He or she can help you avoid income creep — also known as income inflation — the subtle effect of spending more money as you earn more money. Or they can help you develop a strategy for minimizing your tax bill when you report your boosted adjusted gross income to the IRS next year.
2. Retirement
Retirement is one of the biggest financial life events people need help navigating, especially when it comes to figuring out how much to save for retirement.
Why? Simply put, there are a lot of variables to consider when planning for retirement and it’s difficult for the average person to plan 20, 30 or 40 years into the future.
A retirement financial advisor can evaluate your current retirement savings, and develop an investment strategy that balances risk and return inside your portfolio. They can explain the tax implications of contributing to a traditional vs. Roth IRA and recommend the most tax-efficient withdrawal strategies during retirement.
3. Marriage
Wedding bells are within sight but getting married comes with a slew of major financial decisions. Merging finances, choosing how you’ll file taxes (jointly or separately?) and updating life insurance beneficiary designations are just a few of the items on your post-honeymoon to-do list.
A financial advisor can help you create a financial plan before marriage, establishing joint budgets and financial goals with your spouse. If either partner is entering the marriage with significant debt, a financial advisor can create a strategy for managing and reducing it. A professional can also assist with life event financing, that is, creating a realistic wedding budget that won’t derail your other future financial goals.
4. Starting a family
Kids are expensive. A financial advisor can help you adjust your budget and walk you through the financial planning essentials for new families, like creating a family budget and planning for college.
An advisor can also explain the process of setting up education savings plans, like a 529 plan, to earmark money for your children’s educational needs. He or she can assess your current insurance coverage, explain new tax deductions or credits you might qualify for and provide details on dependent care FSAs, which can help you save for things like preschool, summer camp and day care in a tax-advantaged account.
5. Buying a home
Buying a home is probably one of the biggest financial decisions you’ll ever make. Unless you’re an experienced real estate agent (and maybe even if you are), you’ll need someone you can trust to walk you through the process.
Financial advisors can help you figure out how much home you can realistically afford while navigating the impact of interest rates and other economic factors on your monthly mortgage payments. They can answer the many questions you’re bound to have about homeowners insurance, escrow and ways to boost your credit score so you can qualify for better mortgage rates.
6. Divorce
Divorce is an emotionally draining experience, but with the right financial advisor, you can objectively chart a path to financial independence without wrecking your long-term goals in the process.
Reorganizing your financial plan as a single person is no small feat. A financial advisor can explain the implications of splitting assets and property with your ex, the tax considerations of selling a family home and ways to protect your credit score when dividing marital debts.
A financial advisor can also serve as an advocate and coordinate with other professionals on your team, like your divorce attorney, an estate planning attorney, CPA or mortgage broker.
7. Estate planning
While you’ll typically consult with an estate planning attorney to draft a will or create a trust, speaking with a financial advisor can offer insight on more niche money topics like the tax advantages (and maybe disadvantages) of rolling over a retirement plan to your kids.
Maybe you have an adult child with special needs. A financial advisor can explain ways to legally earmark funds to help cover the child’s expenses after you pass away. Or maybe you want to leave a sizable portion of your life savings to charity. A financial advisor can help you compare different giving options, including donor-advised funds and charitable remainder trusts.
8. Disability and long-term illness
A life-changing diagnosis, accident or disability can throw your previous financial plan out the window. A financial advisor can help you create a new budget and map out possible changes and/or losses in future income. An advisor can explain government programs, tax benefits and other assistance you might qualify for. They can also help you navigate insurance options, including ways to lower health care costs.
9. Starting a business
Even if you feel comfortable handling your own finances, starting a new business adds a heap of fresh financial considerations to your plate.
A financial advisor can help you identify funding options, analyze startup costs and project future cash flow — all essential steps for a successful business plan. Advisors can also answer questions about the best legal structure for your new business. A good small business financial advisor will also help you explore insurance options, including liability and property insurance for your company, as well as health insurance options for you, the entrepreneur.
What types of things do financial advisors do?
Financial advisors provide a range of services tailored to meet the needs of their clients.
Many offer these services as part of an hourly fee, while others may offer them as one-off Ă la carte services.
Since “financial advisor” is a general term for any professional who helps provide financial services or guidance to clients, the specific services each advisor offers may vary. Some advisors might not directly manage your investments, for example, while others may focus solely on investment management.
Here’s an overview of what financial advisors do:
- Schedule and conduct meetings with clients to discuss their financial goals and concerns.
- Use financial planning software to assess a client’s current financial situation, including income, expenses, assets and debts.
- Evaluate a client’s risk tolerance and help them choose appropriate investments.
- Research different investment options including stocks, bonds, mutual funds and alternative investments.
- Help clients create a budget.
- Create and manage investment portfolios.
- Recommend insurance policies to protect against unforeseen events.
- Analyze a client’s tax situation and identify strategies to minimize tax liabilities.
- Calculate retirement savings goals and develop tax-efficient withdrawal strategies.
- Review a client’s outstanding debts and provide advice on debt reduction.
- Analyze mortgage options and refinancing opportunities.
Bottom line
Life-changing events are a great time to reassess your priorities and goals. A good financial advisor can help you map out a plan for the future, explaining aspects of your financial journey you may have otherwise overlooked.Finding an advisor you trust doesn’t have to be a hassle. Check out Bankrate’s financial advisor matching tool, answer a few quick questions and get matched with vetted professionals in minutes.
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