9 Times You Need to Talk to a Financial AdvisorNovember 29, 2018
You may want to manage your money on your own, but there are times when it’s a mistake to go it alone.
DIY money management has become commonplace in recent years. Nowadays, it’s not hard for anyone to make a budget, pay taxes or even invest money for retirement, thanks to financial planning tools like Quicken, TurboTax and Betterment.
Still, there are situations where it’s a smart idea to hire a financial advisor.
A financial advisor is a professional who can provide expert guidance in areas such as retirement, taxes and investing. While anyone can call him or herself a financial advisor, professional designations, such as certified financial planner and chartered financial consultant, indicate an advisor has attained a higher level of competency.
Why work with a professional? A quality advisor will listen to your goals, examine your current finances and recommend strategies to minimize taxes, maximize savings or reduce debt quickly. Many planners don’t charge for an initial consultation. However, some may charge an hourly rate of $100 to $200 to create a financial plan or discuss a specific financial topic, says David Totah, certified financial planner and senior wealth advisor with Exencial Wealth Advisors in Frisco, Texas.
While you don’t always need to work with a planner on an ongoing basis, these are nine times when it makes sense to stop in for some financial advice.
When you get your first job. It doesn’t matter whether it pays $20,000 a year or $200,000 a year, starting your first job is a good reason to check in with a professional financial advisor. Not only can a financial planner offer guidance on how best to begin saving for retirement, he or she may also provide insight on how to maximize your employer’s benefits package.
“I like to think that when people are young and starting to make money, they would want to put together a good financial plan,” Totah says.
When you get married or divorced. Another good time to seek out professional financial advisors: whenever you enter or leave a marriage. Bringing in an unbiased third party can help minimize financial losses in a divorce and may make it easier for engaged couples to have conversations about combining assets and income in marriage.
“One of the biggest reasons people should work with a financial planner is so that they don’t make emotional mistakes,” says Richard Wald, managing director of Merrill Lynch Wealth Management. For example, a spouse might feel attached to a family home and insist on keeping it as part of a divorce settlement. In exchange, he or she may lose out on retirement savings that could prove to be much more valuable in the long run.
When your spouse dies. Death brings a unique set of financial challenges. A surviving spouse may have to live on a reduced income or need to determine how best to manage assets such as a home, the death benefit from a life insurance policy or investments. What’s more, for some spouses, this may be the first time they have been in charge of household money management.
“The surviving spouse is propelled into a position of navigating complex financial decisions amid intense emotional grief,” says Robert Westley, a CPA financial planner and member of the American Institute of CPA’s Personal Financial Specialist Credential Committee. A trusted financial advisor can help ensure costly mistakes aren’t made, such as cashing out tax-favored accounts prematurely or moving money into risky investments.
When you receive a large sum of cash. Receiving a large sum of money, such as from an inheritance, bonus, buyout or big raise, should be a boon to your financial health. Unfortunately, many people tend to squander the opportunity.
“Generally, most mistakes happen when people put their windfall to use in a hurry,” Westley says. “A financial planner will empower you to make thoughtful money decisions [so] the windfall can be prioritized to enhance your financial security.”
When you need to take care of aging parents. According to Genworth Financial, the average annual cost of a home health aide in 2017 was $49,188. If you think your parents or another elderly loved one will need care, either in-home or in a nursing home, talking to a financial planner sooner rather than later can help you prepare for this sizable expense.
When you have children. Starting a family means major financial adjustments. The life event also signals the start of estate planning for many couples. “Maybe they need to put wills together or trusts or 529 plans,” Totah says. Wills and trusts can protect assets in the event of a death while 529 plans are college savings funds that come with tax incentives.
While most financial planners are not legal professionals who can draw up wills and trust documents, they can still advise on these topics as they pertain to money management. What’s more, some may collaborate with estate attorneys for a seamless planning process.
When you want to pass on your wealth. Westley says people should make a point to talk to a financial planner before making any large financial gift. “The advisor can gauge how a large gift impacts your financial situation, including any adverse impacts on retirement,” he says.
While taxes might not be on your mind when making a donation, a good advisor will be considering how to turn a charitable donation into a tax advantage. “The planner can help structure the gift in the most tax-efficient manner,” Westley says.
When you are thinking about retirement. Of all the times to talk to a financial planner, none may be more obvious than before retirement. However, to make the most of their advice, you need to consult with a planner well before your expected retirement date. Totah suggests touching base with a professional no later than three to five years before your retirement target date.
However, that doesn’t mean you can’t begin consulting with a financial planner even earlier. By taking stock of your situation 20 to 30 years in advance of retirement, you still have plenty of time to make adjustments and save more if needed.
When you are worth a quarter of a million. In most situations, you may only want to pay for a single visit with a financial advisor, or ongoing financial advice may not be necessary. However, once your income and assets reach a certain point, you may want to develop a regular working relationship with a planner who can keep you in check. According to some financial experts, when you have attained a quarter of a million dollars in assets, it’s a good time to step away from your investments and let an objective third party step in.
Beyond these nine scenarios, there are a number of other situations and circumstances in which someone could benefit from meeting with a financial advisor. Decisions such as whether to take a lump sum buyout at work, purchase an annuity or pay off a mortgage early are all examples. Even if you’re a savvy money manager on your own, you may find value in bringing in a professional from time to time.