4 Myths About Financial Planning

 

By Roxanne Fleszar

 

When it comes to the subject of financial planning, people often have the wrong idea. Whether they confuse planners with accountants, or assume that the planning process is only helpful for those with a lot of money, the misunderstandings endure. Unfortunately, these misconceptions prevent those who would benefit from planning from ever considering the service. In an effort to clear that up, here are four common misperceptions people make about financial planning. 

 

  1. Financial planning is only for the very wealthy

While this is a common belief, it misses an important point: Wealthy people are often wealthy precisely because they planned for it. There are many stories of low earning people saving $1 million or more over their working years. They achieved that with careful planning and diligent savings; In other words, they had a goal and worked toward it.

 

Financial planning can also mean setting up a savings plan for a younger person/couple so they are able to buy their first home. It may involve whether to choose to fund an IRA or a ROTH IRA, or how to select the best investment options in a 401(K) or 403(B) savings plan. Financial planning doesn’t have to be complicated; a younger person may just need someone to assist them in moving in the right direction.

 

It can also involve preparing some calculations to assist a person wondering if they can afford to retire in a few years and have some assurance that they won’t outlive their assets. Or assist a couple that wants to maximize their Social Security benefits.

 

Financial planning comes in many flavors, designed to give you clarity about your financial situation today and assistance in preparing for your future.

 

                         2. I’ve got plenty of time to plan for my retirement

It’s never too early to start planning for retirement. In fact, the longer you wait, the harder you’ll have to work and the more you’ll have to save. Having a plan gives you direction and shows you your options. Do you know what you’ll need to cover your basic expenses and where those funds are coming from? Do you know if you can afford to take up a new hobby, travel more, or pay off your mortgage? If you plan to work part time after retirement, do you know what the earnings limits are if you take Social Security before your full retirement age? Do you know how your income taxes will be impacted by withdrawals from your retirement accounts versus your taxable investments? And how do you ensure that you don’t outlive your money? A financial planner can help you with all of this.

 

        3. I will inherit from my parents (or other relatives) so I don’t have to worry

You may be expecting to receive an inheritance. That’s great, but it doesn’t mean you don’t need a financial plan. After all, it’s unlikely that you know when you’ll be getting your inheritance, or even how much you’ll be receiving.

 

When we work with clients who anticipate an inheritance, we help them establish a solid plan based on what they know and what they can control, so that they’re never caught unprepared. We also look at how inherited assets are to be received (for example, in a trust that limits access for the protection of the beneficiaries or in a lump sum that may require redrafting one’s legal documents). That could make a big difference in how much you’re able to take advantage of your inheritance.

 

                          4. Financial planning is too expensive

Some people miss out on the benefits of planning because they believe it’s too expensive. But that’s like a runner who cuts off his leg because he thinks he’ll be faster with less weight. Far from being a financial burden, planning can actually help you save money. A comprehensive plan will cover your entire financial picture and will identify areas where you could be more efficient with your dollars, such as refinancing a mortgage, raising your deductible on your homeowner’s policy, or reducing your income tax withholdings. A planner can also identify benefits your employer provides that you may have overlooked, like a match on your retirement plan or a Health Savings Account. Solid planning can protect you from financial loss by making sure you have adequate protection in the event of a lawsuit. The plan will also identify whether you have adequate life and disability protection and if what you are paying for is what you actually need. And working with a planner can also improve the long term growth of your investments by defining your goals and your risk tolerance and then matching up your portfolio with your timeline.

 

Taken as a whole, the value of the planning process far outweighs the cost of the service.

 

Co-Written by Roxanne Fleszar, CFP, ChFC and Barbara Ristow, CFP. Roxanne is President of Financial Resources Management Corp, a registered investment advisory firm with offices in Key West, Boston and Naples.

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