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Fall 2021  Volume 14, Number 3        

couple meeting with a financial planner

The High Cost of Not Having a Financial Planner

What difference can a financial planner make to improve your retirement plan?

How much money can you add to your retirement plan by using a financial planner? It depends, of course, but even a small amount can mean a big pay-off. For instance, if you pay $1,000 to $2,000 a year for an advisor, but you save $2,000 a year as a result of more careful planning and you boost your retirement savings $2,000 a year by diversifying your portfolio, then it’s worth the cost.

A financial planner can help you craft a strategy to increase your savings. They also can help you set personal goals and provide a guide for decisions about your future.

Besides helping you reach retirement goals, financial planners or advisors can help you:

  • Repay student loans
  • Plan your estate
  • Save for college
  • If your spouse dies; you become disabled; receive an inheritance; get divorced; or are facing an IRS audit.

In addition, a financial planner can be a source of advice during tough economic times. For instance, a Vanguard survey last year showed that more than 50 percent of millennials hadn’t received any professional financial advice, while 57 percent reported that COVID-19 had a negative effect on their finances.

In short, not having a financial planner can cost you in the long run. But what if you think you can’t afford a financial planner? The good news is that you don’t need a million dollars to hire a financial planner. Here are some options for getting the advice you need.

Fee-Only Financial Planner

It’s true that you often need a substantial amount of savings before you hire a financial planner. Traditional money management firms require clients to have at least $250,000 or more in investments.

If you are in this category, be aware of all the financial planner’s fees before you sign. Make sure the fees will be less than what the financial planner can save or earn for you.

There are basically three types of financial advisors: fee-only, fee-based and commission-based. It costs less up front to work with fee-based planners and commission-based planners. However, these advisors make their living off the commission of selling certain products, so their advice could be biased.

A fee-only financial planner who also is a Registered Investment Advisor (RIA) has promised to provide financial advice based on what would be the best for a particular client’s financial situation.

In this case, there is an upfront fee. For instance, if you’re paying an hourly rate of $200 and it takes five hours to confer with you and set up your plan, you would owe $1,000. Follow-up meetings most likely would be shorter and less expensive.

Some advisors charge a percentage based on the assets they’re managing — usually for portfolios of $100,000 or more. Their fee can range from 0.5 percent to 2 percent. While that might seem high, advisors are financially motivated to see your money grow. The more money they make for you, the more money they earn.

For an estate plan or will, you can use a flat-fee advisor. This way you know up front what your maximum cost will be.

If you aren’t sure what type of fee set up is best for you, you can ask for an information-only meeting to learn what a financial planner can do for you.

Do It Yourself

If you can’t afford a financial planner, there are classes, business magazines, books and websites available. For example, online brokerage firm websites often feature basic investment information.

Any financial plan you create should be diversified. Diversification means that you should spread your investments across several companies, industries, sectors and asset classes, instead of investing in just one of them. You want to avoid the risk of having all of your eggs in one basket.

It also helps to buy mutual funds instead of individual stocks because mutual funds are structured to diversify risk.

You also should contribute the maximum amount in your IRAs, as well as your 401(k) retirement plan.

Don’t forget to include estate planning into your overall financial plan. At the bare minimum, make a will and provide for your family’s future with life insurance.

The challenge is weeding through all the information to find out what will work best for you. Any website that makes claims that sound too good to be true should be avoided. It’s also best to stay away from companies that promote just one investment idea — such as only buying real estate. Even if the idea is sound, don’t plan your financial future around one investment strategy.

Doing it yourself can be rewarding. But having a trusted financial advisor at your side helping and advising you can be financially rewarding and a comfort.


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In this issue:

This Just In...

The High Cost of Not Having a Financial Planner

How to Determine How Much You’ll Need in Retirement

Medicaid Work Requirements Slowly Being Phased Out

The Financial Challenges of Being on Disability


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