Major life events are often accompanied by major financial decisions. A new job is cause for celebration, but how will the switch affect your retirement plans? Should you contribute to a traditional 401(k) at your new job or try the Roth 401(k) option instead?
These answers are not always obvious, but luckily you don’t have to figure it out alone.
A financial advisor is an expert who can help you create a tailor-made financial step-by-step plan for all matters that make your situation unique. Whether you’re starting a family, buying a home or starting a new business, a financial advisor can help you explain the impact of major life events on your taxes, savings, investments and more.
Here are 9 life-changing events that a financial advisor can help you with, along with financial planning examples, so you can decide if speaking with an advisor is right for you.
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A pay increase
Getting a raise at work or getting a better paying job can open new doors. But without expert advice, it can be difficult to determine which financial door to walk through first.
A financial advisor can help you decide whether it’s time to increase contributions to your retirement account at work and tailor your financial plan to your new, higher salary. He or she can help you avoid income growth – also called income inflation – the subtle effect of spending more money as you earn more money. Or they can help you develop a strategy to minimize your tax bill when you report your increased adjusted gross income to the IRS next year.
Pension
Retirement is one of the biggest financial events in life that people need help with, especially when it comes to figuring out how much to save for retirement.
Why? Simply put, there are many variables to consider when planning for retirement, and it’s difficult for the average person to plan twenty, thirty, or forty years into the future.
A financial retirement advisor can evaluate your current retirement savings and develop an investment strategy that balances risk and return within your portfolio. They can explain the tax implications of contributing to a traditional vs. Recommend Roth IRA and the most tax-efficient withdrawal strategies during retirement.
Wedding
The wedding bells are in sight, but getting married comes with a whole series of important financial decisions. Consolidating finances, choosing how to file taxes (jointly or separately?) and updating life insurance beneficiary designations are just a few of the items on your post-honeymoon to-do list.
A financial advisor can help you create a pre-marriage financial plan, setting joint budgets and financial goals with your partner. If either partner enters the marriage with significant debt, a financial advisor can devise a strategy to manage and reduce it. A professional can also help finance life events, that is, by creating a realistic wedding budget that won’t derail your other future financial goals.
Starting a family
Children are expensive. A financial advisor can help you adjust your budget and guide you through essential financial planning for new families, such as creating a family budget and planning for college.
An advisor can also explain the process of setting up education savings plans, such as a 529 plan, to set aside money for your children’s educational needs. He or she can review your current insurance coverage, explain new tax deductions or credits you may qualify for and provide details about dependent care FSAs, which can help you save for things like preschool, summer camp and child care in a tax-advantaged account.
Buy a house
Buying a home is probably one of the biggest financial decisions you will ever make. Unless you’re an experienced real estate agent (and maybe even if you are), you need someone you can trust to guide you through the process.
Financial advisors can help you figure out how much house you can realistically afford while assessing the impact of rising interest rates and other economic factors on your monthly mortgage payments. They can answer the many questions you’re sure to have about homeowners insurance, escrow, and ways to improve your credit score so you can qualify for better mortgage rates.
Parting
Divorce is an emotionally draining experience, but with the right financial advisor you can objectively chart a path to financing independence without destroying your long-term goals.
Reorganizing your financial plan as a single person is no easy task. A financial advisor can explain the implications of splitting assets and property with your ex, the tax considerations of selling a family home, and ways to protect your credit score when dividing marital debt.
A financial advisor can also act as an attorney and work with other professionals on your team, such as your divorce attorney, an estate planning attorney, CPA, or mortgage broker.
Estate planning
While you typically consult an estate planning attorney to draft a will or set up a trust, speaking with a financial advisor can give you insight into more niche money topics, such as the tax benefits (and perhaps the downsides) of rolling over a pension plan to your partner. children.
Financial advisors can help you analyze your assets and create a customized estate plan to transfer your assets in a way that works for you.
Perhaps you have an adult child with special needs. A financial advisor can explain how you can legally set aside money to cover the child’s expenses after you die. Or perhaps you want to leave a significant portion of your savings to charity. A financial advisor can help you compare different giving options, including donor-advised funds and charitable remainder trusts.
Disability and long-term illness
A life-altering diagnosis, accident or disability can throw your previous financial plan into disarray. A financial advisor can help you create a new budget and conduct a cash flow analysis to identify potential changes and/or losses in future income. An advisor can explain government programs, tax benefits, and other assistance you may qualify for. They can also help you navigate insurance options, including ways to reduce healthcare costs.
Starting a business
Even if you’re comfortable managing your own finances, starting a new business adds a lot of new financial considerations to your plate.
A financial advisor can help you identify financing options, analyze start-up costs, and forecast future cash flow – all essential steps for a successful business plan. Advisors can also answer questions about the best legal structure for your new business. A good small business financial advisor will also help you explore insurance options, including liability and property insurance for your business, as well as health insurance options for you, the entrepreneur.
What kinds of things do financial advisors do?
Financial advisors offer a range of services tailored to the needs of their clients.
Many financial advisors offer these services at an hourly rate, while others offer them as one-time a la carte services.
Since “financial advisor” is a general term for any professional who helps provide financial services or guidance to clients, the specific services each advisor offers may vary. For example, some advisors do not directly manage your investments, while others focus solely on investment management.
Here’s an overview of what financial advisors do:
- Schedule and conduct meetings with clients to discuss their financial goals and concerns.
- Use financial planning software to assess a client’s current financial situation, including income, expenses, assets and liabilities.
- Evaluate a client’s risk tolerance and help them choose the right investments.
- Research different investment options, including stocks, bonds, mutual funds and alternative investments.
- Help clients set a budget.
- Create and manage investment portfolios tailored to clients’ risk tolerance and financial goals.
- Recommend insurance policies to protect you against unforeseen events.
- Analyze a client’s tax situation and identify strategies to minimize tax liabilities.
- Optimize tax savings opportunities within investment portfolios.
- Calculate retirement savings goals and develop tax-efficient withdrawal strategies.
- Assess a client’s outstanding debts and provide advice on debt reduction.
- Analyze mortgage options and refinancing options.
In short
Life-changing events are a good time to reassess your priorities and goals. A good financial advisor can help you map out a plan for the future, explaining aspects of your financial journey that you might otherwise have overlooked.
Finding an advisor you trust doesn’t have to be a hassle. Check out Bankrate’s matching tool for financial advisors, answer a few quick questions, and get matched with vetted professionals in minutes.
