Is It Time to Hire a Financial Advisor? | 5 situations when the answer could be yes

Is It Time to Hire a Financial Advisor? | 5 situations when the answer could be yes

 

 

A financial advisor is a professional who is in charge of guiding an individual or entity towards their financial goals in the most efficient way. At Merriman, we love taking on the burden of financial planning so our clients can get back to spending their time and energy doing the things they love.

 

Thrive Global describes the financial sector as complex and dynamic, with assets and trends changing and interdependent with other factors, and a financial advisor has the skills required to study these processes and trends. However, only 17% of Americans hire a financial advisor, with the rest either managing their own finances or simply winging it. But in a time where debt and living expenses are increasing, having and following a financial plan is more important than ever. If you find yourself in any of the following situations, you should consider hiring a financial advisor:

 

You’re starting a new business

Starting a new business can be a costly endeavor, as it involves expenses and procedures you wouldn’t immediately be aware of, such as filing for a certificate of formation and providing initial reports and paying their respective filing fees. A financial planner can advise you on the best structure to form your business in, taking into account startup costs, annual taxes, and filing fees. LLCs in Washington need to be aware of the taxes they need to pay at the federal, state, and local levels, as well as a sales tax and state employment tax. All of these can become overwhelming to keep track of, especially if you’re a budding business, and a financial planner can help you get it all sorted out.

 

You’re a DIY investor

A simpler investment plan is usually better; however, this isn’t true with financial planning. An overall financial plan should also consider factors such as retirement planning, tax planning, and insurance planning. Market Watch explains that DIY investors would still need a financial advisor in order to be sure that nothing is being missed out. Clients don’t realize that an advisor will do more than just manage their portfolio and help with investment plans. Financial advisors can take charge of a range of money-related management tasks, such as making a comprehensive saving and spending plan and guiding the client towards making sensible financial decisions.

 

You’re starting a family

Raising a child is not cheap: It costs an average of $233,610* to raise a child for the first 17 years of their life. Having a financial advisor can help you review your finances to see if you can actually afford being a parent. An advisor can also help you plan when to start saving for your child’s college expenses, while also keeping your retirement plan on track and leaving space for a growing family. They can help settle any future inheritance as well as ensure that your children will be taken care of.

 

You’re close to retirement age

Though you may have a retirement plan, the financial decisions you make in retirement might be more complex than the decisions you’ve had to make in the years leading up to it. A financial advisor can help you consider what you should do so you don’t end up outliving your money. Even when you’re already in retirement, a financial advisor can help you manage a spending plan. You might even consider an investment plan as well, and an advisor will help you make decisions that won’t sacrifice what you already have.

  

You’re financially illiterate

There is a financial literacy crisis in America, but financial advisors can help solve this problem. Americans would rather talk about anything else, such as religion, politics, even death, rather than personal finances. Aside from the embarrassment, another major factor that makes money talk taboo is that it is considered rude to talk about it with other people. However, talking about money is the first step to being a financially literate person. Advisors let their clients ask anything without judgment, creating a learning environment that empowers people to expand their knowledge about their own financial situation.

 

The circumstances requiring a financial planner aren’t just limited to the points discussed above. Overall, it’s important to plan for your financial future. Read our “Why Do I Need a Financial Plan?” for a deeper understanding of why a financial advisor is the right person to develop a financial plan for you. And to learn more about the value that a financial advisor can provide, check out the “10 Reasons Why Clients Hire Us.” If you would like to start looking for an advisor to help you with your plans, get in touch with us to discuss the necessary steps.

Article written by Ellie Hartwood
Exclusively for Merriman

 

Source: *https://www.usda.gov/media/blog/2017/01/13/cost-raising-child#:~:text=Middle-income, married-couple,Where does the money go?

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.

Getting the Most From Your Health Savings Account (HSA)

Getting the Most From Your Health Savings Account (HSA)

 

Are you aware of the many planning aspects of HSAs? We’d like to share some of the more in-depth aspects with you here so you can get the most from your HSA. However, if you’re unfamiliar with HSAs or need a quick reminder about them and high-deductible health plans (HDHP), then we encourage you first to read our blog article: A New Perspective on Health Savings Accounts.

HSAs are more tax efficient than other retirement accounts.

HSA accounts are often referred to as “triple tax-exempt” because your contributions, earnings, and qualified withdrawals are not taxed. This triple tax-exempt nature of HSAs makes them more attractive than other retirement accounts that are only double tax-exempt, including 401(k)s, IRAs, and Roth IRAs.

 

Employee HSAs could be considered quadruple tax-exempt.

Additionally, if you’re an employee and make HSA contributions via payroll deduction, then you have an added benefit of avoiding FICA (Social Security and Medicare) and FUTA (unemployment) taxes on those contributions. Contributions to your 401(k) via payroll deductions don’t avoid these taxes.

 

Don’t use your HSA for current medical expenses and invest the funds.

In order to fully benefit from the triple or quadruple tax-exempt nature of an HSA, you’ll need to let the account grow. It’s important to leave your contributions in your HSA and to invest them for the most potential growth.

Note: This means you’ll need to pay for medical expenses out of pocket, which can get expensive when you have a high-deductible health plan (HDHP).

 

Save receipts for current medical expenses to reimburse yourself in the future.

There is no time limit for reimbursing yourself for qualified medical expenses, so you can reimburse yourself in the future—even 30 years from now—for expenses incurred today. You must keep records of these expenses, so it’s important to keep your receipts. You’ll have plenty of medical expenses in retirement, so saving receipts for small expenses may not be worth the effort. Consider saving receipts for larger current expenses.

Note: You can’t reimburse yourself for medical expenses incurred before the HSA account was established or for medical expenses deducted on Schedule A of your tax return as itemized deductions.

 

Maximize your catch-up contributions in a family HDHP.

You can make an annual $1,000 catch-up contribution to your HSA beginning at age 55. If you have a family HDHP or two separate HDHPs, then you can potentially make two catch-up contributions—one for each spouse who’s 55 or older if the catch-up contributions are made to each of their separate HSA accounts.

Note: Most family HDHPs are set up with one HSA account in the employee’s name. If the spouse doesn’t have their own HSA account, then they will need to open one in order to make their own catch-up contribution.

 

Contribute after you stop working and before you enroll in Medicare

Unlike an IRA or Roth IRA, you don’t need to have earned income to be able to contribute to your HSA. You can contribute to your HSA if you have an HDHP and haven’t yet enrolled in Medicare. If you retire before Medicare age, then you’ll need to either continue your coverage through your employer with COBRA or get individual coverage. If either of these coverages is an HDHP, then you can contribute to an HSA.

Note: You can’t contribute to an HSA once you enroll in Medicare because Medicare is not an HDHP. Enrollment in Medicare includes enrollment in any Medicare coverage—Parts A, B, C, D, or a Medigap plan.

 

Contribute tax-free funds from your IRA in a one-time rollover.

You can make a one-time rollover from your IRA to your HSA up to your contribution limit for the year. If you wait to perform this rollover until you’re age 55, you can rollover both the maximum annual contribution and your catch-up contribution. This rollover must be transferred directly from your IRA into your HSA in order to be tax-free.

Note: A good candidate for this rollover would be someone who has a large IRA and might already be looking for openings to convert some of their IRA to after-tax accounts, such as a Roth IRA.

 

Use your HSA to pay for certain insurance premiums.

You can use your HSA to pay for certain health insurance premiums that are considered qualified expenses, including long-term care insurance (subject to limits and restrictions), healthcare continuation such as COBRA, healthcare coverage while receiving unemployment benefits, and Medicare or other healthcare coverage at age 65. Premiums for a Medicare supplemental policy are not considered a qualified expense.

Note: The annual amount of qualified long-term care premiums is limited and based on your age, which ranges from $420 for those age 40 and younger to $5,270 for those age 71 and older. The long-term care policy must also meet certain requirements itself to be qualified.

 

Non-qualified withdrawals after age 65 aren’t penalized.

Withdrawals for qualified expenses for yourself, your spouse, and your dependents are not taxable and not subject to a penalty. Non-qualified withdrawals are subject to a 20% penalty and tax, but the 20% penalty no longer applies once you reach age 65. Non-qualified withdrawals after age 65 are taxable, making them comparable to IRA withdrawals. While you’ll lose the triple-tax exempt nature of an HSA, your contributions and growth were tax-free.

Note: If you must take taxable distributions and you aren’t yet 65, then consider distributing funds from an IRA before distributing funds from your HSA to avoid the 20% penalty. Keep in mind that there is a 10% penalty for IRA withdrawals prior to age 59 ½.

 

Qualified distributions for a deceased owner are non-taxable within one year of death.

If you pass away and your beneficiary is your spouse, then they can continue the HSA as their own. If the beneficiary is not your spouse, then the value of your HSA at the time of your death is distributed and deemed taxable income for them. However, your beneficiary can use the HSA to pay for your outstanding qualified expenses within one year of your death. Funds used for this purpose by a non-spouse beneficiary are excluded from the value of the account, thus lowering their taxable income.

Note: Discuss your outstanding qualified expenses with your beneficiary. They can only use the account to pay for your expenses after your death if they have the necessary information and records.

 

Getting the most out of your HSA can be difficult, especially while trying to do so over a long period of time. It’s important to integrate HSA planning into your overall financial goals and retirement plan. As financial advisors, we love to help our clients accomplish these things, so please reach out to us if you have any questions. We’re here to help!

 

 

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.

Start the New Year Right – Financial Mistakes to Avoid in 2021

Start the New Year Right – Financial Mistakes to Avoid in 2021

 

In a recent National Association for Business Economics survey, 72% of respondents expect a recession to hit our country by the end of 2021. The last major recession, from December 2007 to June 2009, brought with it a huge dive in the stock market.

While no one knows when the next recession will occur, you need to learn what not to do so that you can make yourself financially stable. With that in mind, Business Insider reached out to experts to analyze the mistakes which hurt you and to offer ideas for avoiding them. Here are some of the top mistakes along with some additional tips to make sure you’re prepared for anything!

 

Avoid excessive spending

People think that they earn in order to spend. But in reality, money has four jobs: spending, saving, investing, and donating.

Spending is one factor of money management. Most people make mistakes by spending excessively. They spend more and thus get into serious debt.

When you pick up that extra cheese pizza, stop for a latte, eat out, or pay for a movie, your spending seems small. However, it adds up to a larger amount once you consider how much you spend on these small items in a year.

If you’re enduring financial hardship, you need to monitor your expenses closely.

 

Not having a detailed idea of all expenses

Having only a rough idea of where your money goes can land you in a difficult situation. As the saying goes, you can’t manage what you don’t measure. When asked how much you will spend this month, a quick answer would no doubt include a few bills and other expenses. But when you start going through your bank and credit card bills, you will be surprised to see where a substantial amount of your paycheck is going. So, in order to avoid these errors, it is mandatory that you detail all these individual expenses, and there are many good tools to help with budgeting.

 

Living on borrowed money

Excessively borrowing or spending on credit is not financially healthy. Using a credit card for day-to-day purchases or for the airline miles or rewards programs is normal. But if you’re paying interest on gas, groceries, and other items, then you’re making a big mistake. Credit card interest rates make the price of the items a bit expensive. Purchasing on credit also has the tendency to allow you to lose track of exactly what you are spending, often resulting in spending more than you earn.

If you use credit cards to make purchases, make sure to repay the entire bill at the end of every billing cycle.

 

Making minimum payments on credit card debt

Paying extra on credit card debt is certainly better than paying the minimum amount. You can repay your debt faster by putting extra money toward the debt with the

highest interest rate and making just the minimum payments on the rest. As one balance is paid off, shift those payments toward the next card with the highest rate and so on until you’re debt-free.

 

Paying bills late

Paying bills late means extra money goes out of the pocket. Many people forget the due dates of bill payments. To avoid this, automatic bill payment is a great solution. In addition, you can use your phone’s calendar alert and easy-to-use apps to send you text alerts when bills are due.

 

Halting on regular savings and investing

The stock market was volatile in 2020. Many investors panicked as their investment portfolio temporarily went off track due to a sudden fall in the stock prices. The only way to deal with this is to reset your investment portfolio.

Watching the market drop doesn’t mean you should stop investing—in fact, you get the benefit from stocks being cheaper than they previously were.

Make a financial plan, choose an investment strategy that’s appropriate for your needs, and stick to the plan unless there’s a major change in your financial life.

 

Stopping retirement contributions

If you or your spouse lose your job when unexpected expenses arise, you might consider stopping your contributions to your retirement savings to cope with increased financial demand. However, once the situation comes under control, do not neglect your retirement fund.

 

Spending more to maintain a lifestyle

A sudden rise in your income can entice you to improve your lifestyle. Resisting this temptation is the smartest thing you can do, particularly if you have a large goal like buying a house, good education for the kids, etc.

You can splurge a bit but don’t spend beyond your budget. Rather, focus on saving the amount you need to attain a financial goal.

 

Using home equity like a piggy bank

Having a shelter over your head is the most essential thing. Your home is your palace. Taking out a loan from it gives the authority over your house to someone else. So, if you can’t repay the amount, you can lose your home. Think twice before doing so.

 

Spending too much on the house

Dreaming of a big house is good, but it is not a necessity. If you have a big family, you may need a larger house, but to go for a luxury home is something that hampers your spending. Choosing a more expensive or luxury home will only mean more taxes, maintenance, and utilities. After knowing this, do you still want to take a chance for a long-term dent in your budget?

 

Having the wrong life insurance policy

Life insurance is important if you have dependents. A general rule of thumb is to have term insurance equal to ten times your salary. Work with an insurance agent you trust, one who’s not going to try and sell you a more expensive policy than you need.

Gather knowledge and purchase a policy that fulfills the needed requirement.

 

Not having an emergency fund

You should set aside extra funds for emergencies. They can happen to anyone at any time. Unforeseen circumstances like a job loss, car repair bill, illness, etc., should be planned for as much as possible. An emergency fund can protect you from crippling debts. A good rule of thumb is to have at least 3 to 6 months of your spending set aside in an emergency fund.

Avoiding the mistakes and following the strategies shared above can help you have a healthier financial life in 2021.

 

 

Written by: Phil Bradford | Exclusively for Merriman.com

 Author Bio: Phil Bradford is a financial content writer and an enthusiast. He is not employed or associated with Merriman. He has expert knowledge about personal finance issues and he is a regular contributor to Debt Consolidation Care. His passion for helping people who are stuck in financial problems has earned him recognition and honor in the industry. Besides writing, he loves to travel and read books.

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.

 

What Women Need to Know About Working with Financial Advisors | Tip #4

What Women Need to Know About Working with Financial Advisors | Tip #4

I want to acknowledge that all women are wonderfully unique individuals and therefore these tips will not be applicable to all of us equally and may be very helpful to some men and nonbinary individuals. This is written in an effort to support women, not to exclude, generalize, or stereotype any group. 

 

I was recently reminded of a troubling statistic: Two-thirds of women do not trust their advisors. Having worked in the financial services industry for nearly two decades, this is unfortunately not surprising to me. But it is troubling, largely because it’s so preventable.

Whether you have a long-standing relationship with an advisor, are just starting to consider working with a financial planner, or are considering making a change, there are some simple tips all women should be aware of to improve this relationship and strengthen their financial futures.

Tip #4 – Ask Questions

Studies have shown that women tend to be more realistic about their own skill level. It’s not necessarily that we lack confidence—more that we lack overconfidence. I think that’s a good thing; however, it means women lacking financial expertise are more likely to feel self-conscious about asking a question that could be perceived as foolish. This can be particularly hard if there is a third party present (such as a spouse) who has a greater understanding, likes to use the lingo, and/or tends to monopolize the conversation. If necessary, don’t be shy about asking for a one-on-one meeting with your advisor so you have a chance to ask all the questions you want without someone interrupting you or changing the subject.

I would always prefer that someone ask questions rather than misunderstand, and it can be difficult to gauge a client’s level of understanding if they don’t ask questions. I have many highly-educated clients who have never had any interest in investing or financial planning, so it just isn’t their strong suit. There is nothing to be embarrassed about. I promise that an experienced advisor has heard any basic question you might ask a thousand times before. If an advisor is unhelpful or condescending when you ask a question, you should not be working with that person. There are plenty of advisors out there who are eager to share what they know with you. Sometimes the hard part can be getting us to stop talking once you’ve asked! And of course, being comfortable enough to ask questions is always easier if you like the person you are working with (see tip #1).

There are many different considerations when hiring an advisor: Are they a fiduciary? Do they practice comprehensive planning? How are they compensated? What is their investment philosophy? They may check off all your other boxes, but if you don’t like them, you are unlikely to get all you need out of the relationship. If you’re looking for an advisor you’re compatible with, consider perusing our advisor bios.

Be sure to read our previous and upcoming blog posts for additional tips to help women get the most out of working with a financial advisor.

Why Do I Need A Financial Plan?

Why Do I Need A Financial Plan?

 

If you fail to plan, you are planning to fail. This adage, generally attributed to Benjamin Franklin, is as true for financial planning as it for other endeavors. At Merriman, we want to help clients meet their financial goals. Any successful goal-setting strategy includes a detailed plan. But this plan is not only helpful for increasing chances of success. It is also one method we use to minimize potential failures.

When you first met your advisor, did you start your relationship and immediately hand over your hard-earned resources to their management, or did they put you through a rigorous due-diligence process to develop an agreed-upon plan before moving forward?

While the latter requires a lot more time and energy upfront from both parties, this hard work pays off and makes the relationship more valuable and more productive in the long-term. (Short-term pain, long-term gain). It can especially add value during times of uncertainty or major life transitions, such as retirement. When the unexpected happens, the plan serves as the basis for deciding how to react. Without a plan, it is easy to act impulsively or without fully considering future consequences. A good plan has already taken into account potential pitfalls or trouble spots and has a strategy to overcome them. With a plan in place, you are able to adjust course, if needed, and ultimately still get to your desired outcomes.

At Merriman, we build a plan together from the beginning of our relationship and stress test your resources to determine the likelihood of achieving your most important financial goals. We start with a discovery meeting where we map out all aspects of your life—financial and otherwise—so we can provide a truly customized plan to help you achieve your goals. To make this meeting as productive as possible, we ask that if you have a spouse or partner, have them join us, as the plan we are building together is for the both of you.

As part of our due diligence, we securely collect important items such as tax documents, insurance statements, estate planning documents, paystubs, budgeting and expenses, financial accounts and retirement income statements, and debts, among other information. This may seem like a lot to ask for at the start, but these documents provide clues to potential weak spots in your plan.

Think of it this way: when you meet with a physician for the first time, do they judge your health based solely on your physical appearance, or do they ask tough questions and run a gamut of tests before providing a diagnosis? The collected samples and information serve as the inputs and the test results are the outputs based on the criteria used in the examination. A financial plan can be thought of the same way.

While test results are useful, they are in themselves really just data. We then interpret this data, informed by our education and experience, to provide comprehensive advice on how best to achieve your financial goals.

Why do you need a financial plan? Because in good times and difficult times, a financial plan is your best opportunity to meet your financial goals. At Merriman, that’s our mission, and that’s why we take financial planning as seriously as we do. You should expect the same attention to detail from anyone with whom you choose to work.

Reach out to us to discuss your specific goals and the necessary next steps to achieve them.

 

What Women Need Know About Working with Financial Advisors | Tip #3

What Women Need Know About Working with Financial Advisors | Tip #3

I want to acknowledge that all women are wonderfully unique individuals and therefore these tips will not be applicable to all of us equally and may be very helpful to some men and nonbinary individuals. This is written in an effort to support women, not to exclude, generalize, or stereotype any group.

 

I was recently reminded of a troubling statistic: Two-thirds of women do not trust their advisors. Having worked in the financial services industry for nearly two decades, this is unfortunately not surprising to me. But it is troubling, largely because it’s so preventable.

Whether you have a long-standing relationship with an advisor, are just starting to consider working with a financial planner, or are considering making a change, there are some simple tips all women should be aware of to improve this relationship and strengthen their financial futures.

Tip #3 – Know the Difference Between Risk Aware & Risk Averse

Countless studies have shown that women are not necessarily as risk averse as they were once thought to be. As a group, we just tend to be more risk aware than men are. Why does this matter? First of all, I think it’s important to be risk aware. If you aren’t aware of the risk, you can’t possibly make informed decisions. But by not understanding the difference, women sometimes incorrectly identify as conservative investors and then invest inappropriately for their goals and risk tolerance. Since most advisors are well-practiced in helping people identify their risk tolerance, this is an important conversation to have with your advisor. During these conversations, risk-aware people can sometimes focus on temporary monetary loss and lose sight of the other type of risk: not meeting goals. If you complete a simple risk-tolerance questionnaire (there are many versions available online), women may be more likely to answer questions conservatively simply because they are focusing on the potential downside. Here is an example of a common question:

The chart below shows the greatest 1-year loss and the highest 1-year gain on 3 different hypothetical investments of $10,000. Given the potential gain or loss in any 1 year, I would invest my money in …

Source: Vanguard           

A risk-aware, goal-oriented person is much more likely to select A because the question is not in terms they relate to. It focuses on the loss (and gain) in a 1-year period without providing any information about the performance over the period of time aligned with their goal or the probability of the investment helping them to achieve their goal. A risk-averse person is going to want to avoid risk no matter the situation. A risk-aware person needs to know that while the B portfolio might have lost $1,020 in a 1-year period, historically it has earned an average of 6% per year, is diversified and generally recovers from losses within 1–3 years, statistically has an 86% probability of outperforming portfolio A in a 10-year period, and is more likely to help them reach their specific goal.

A risk-aware person needs to be able to weigh the pros and cons so when presented with limited information, they are more likely to opt for the conservative choice. Know this about yourself and ask for more information before making a decision based on limiting risk.

Having a conversation about your risk tolerance, the level of risk needed to meet your goals, and asking for more information is always easier when you follow tip #1—work with an advisor you like. There are many different considerations when hiring an advisor: Are they a fiduciary? Do they practice comprehensive planning? How are they compensated? What is their investment philosophy? They may check off all your other boxes, but if you don’t like them, you are unlikely to get all you need out of the relationship. If you’re looking for an advisor you’re compatible with, consider perusing our advisor bios.

Be sure to read our previous and upcoming blog posts for additional tips to help women get the most out of working with a financial advisor.