Common Financial Planning Mistakes
There are a lot of moving parts to your financial world. Hopefully, you’ve checked all of your boxes and addressed every single financial planning need that exists. But, in the event you want to double-check your progress, I highly suggest starting with the below areas of planning that we have found are frequently overlooked:
Top 5 Mistakes:
1. Jumbling Your Investments
A lot of times I encounter an investor who chooses target date funds in their 401k, but also decides to mix in a sprinkle of this fund and that fund. But what they don’t realize the overlap they just created in their portfolio. Those target date funds are comprised of the same funds in the investment lineup unless the plan specifically allows for self-directed brokerage accounts. Lesson to be learned: consider target date funds OR a customized portfolio approach. The combination of the two may result in unnecessary overlap and missed opportunities!
2. Leaving A Trail Of Breadcrumbs
More often than not, I come across investors who leave their old 401k’s behind and completely ignore the opportunity to consolidate their accounts. Remember this one word: Breakpoint. This is the threshold in which you experience a reduction in fees, whether it is the platform fee or the advisor fee. As an example, if you have three separate $100,000 accounts at three different employer 401k plans, you could consolidate them into one IRA or your current 401k (assuming the plan allows) and save anywhere from 0.05% — 0.10% in platform and/or advisory fees. The result could be thousands of dollars on the backend, plus you no longer have to manage three separate accounts.
3. Managing the Match
I see a lot of money left on the table. Typically, it’s when an employer is providing a match, say, up to 6% of an employee’s salary and the employee is only deferring a flat dollar amount or small percentage of their salary. The IRS allows deferrals north of $20,000 (varies by age), so why not start small and maximize your employer’s generosity? A good discipline is to increase your contribution by at least 1% every year, especially around bonus time or performance reviews that result in a raise.
4. Relying On Group Benefits To Meet Your Needs
Does your employer offer group benefits? If so, is it enough to cover you in the event of the lightning strike, or being hit by a bus? I strive to help my clients understand risk management to the fullest by educating them on how to transfer risk. For those who have not supplemented their group benefits, consider going through the following exercises with a trusted advisor:
- Income Replacement Analysis – this will help determine how much life insurance you actually need in order to keep your family in the same lifestyle they currently enjoy
- Income Protection Analysis – this exercise will demonstrate how your income is impacted by a prolonged disability or injury
- Health Care Analysis – we focus on creating efficiencies with HDHCP (high deductible health care plans) with the use of HSA’s (healthcare savings accounts)
5. Tangled Webs
Imagine amassing your nest egg or even just starting a family, but you leave important areas of planning unaddressed. From the young families to a millionaire’s estate, a lack of legal planning is the last thing your family needs to deal with during a difficult time. Don’t put the burden on your loved ones, consider working with an attorney on the following areas:
- Power of Attorney (Medical and Durable)
- Last Will and Testament (Blended families need this more than anything!)
- Business Arrangements (Operating Agreements, Buy/Sell Provisions)
- Beneficiary Updates (Please, no juveniles without a trust!)
If one of these items stands out as an area for improvement, please schedule a 15 minute call to discuss how we can help http://www.calendly.com/jmilliken