Questions For Your Financial Planner

As the year rolls on, risk and credit are being repriced and financial markets remain in some turmoil.

In the last few client reviews I’ve had, the clients have all stated that they haven’t even looked at their statements.   If you find yourself in this situation and retirement is creeping around the corner, this is highly not suggested.

Now, more than ever, you need to be on top of your financial situation.  Your portfolio could be completely intact, but most likely there might be some opportunities to take advantage of.

When meeting with your financial planner, here are 7 questions you should ask to get a better sense of where the market dump has left you.

Updated: I recently did a follow post that addressed the #1 question you should ask a financial advisor before hiring them. Watch the video to hear what is.

1. What is my true financial situation?

Re-examine your investment goals, time horizon, risk tolerance and financial circumstances. Have any of these objectives or circumstances changed?

Have you added to your bond and money market investments during this volatile time? If so, will that more conservative investment mix still allow you to meet your long-term goals of saving for your children’s college education and funding a retirement income plan?

Allow your planner to assess your true financial situation by providing complete information on your current financial picture. Make sure to include not only your  investments held with them,  but other investments as well, including bank savings accounts.

2. How should I be thinking about risk in this environment?

Did you used to consider yourself an aggressive investor prior to 2008? It’s time to truly ask yourself what your risk tolerance is.  Has it changed — or are you just feeling natural unease following a downturn?

The hardest thing to do when markets and stocks are going down is to stay the course.  For some, that happens because they have taken too much risk at the top of the market. Many investors end up going to cash or bonds when markets are declining. Eventually, after a recovery begins, they think, ‘What have I been missing?’ They eventually come back in, but miss a good deal of the recovery.


Communication is vital in financial planning process

3. Do I need to reconsider my time horizon?

How long is your time horizon? All things being equal, you can afford to be more aggressive if you have a longer time horizon. For example, most planners would recommend that the investment mix of a 32-year-old be more heavily weighted in equities than that of someone who is close to retirement.

Do you have multiple time horizons? A 32-year-old who is saving for a down payment on a house in three years would be investing a portion of her money with a three-year time horizon despite the fact that retirement may be 33 years away. Given the short time frame, it would be prudent to invest those assets more conservatively because there is little time to make up any losses.

Can you adjust your plans to retire? Perhaps you once planned to retire early at 62 and your investment portfolio shrank in 2008. Ask your adviser to calculate how long you would have to work beyond 62 to build a portfolio that can produce a lifelong income stream. If you could wait to retire at 65, you would add three more years of income and investing, while reducing your withdrawal phase by three years. It would also enable you to postpone the year you start claiming Social Security benefits. If you claim before your full retirement age, your benefits would be reduced for life.

4. Does my investment strategy need readjusting?

If you are retired and withdrawing income from your investment portfolio for living expenses, talk to your financial planner about taking out less today and over the next several years. This approach can help make your investments last longer. You can’t predict or control the stock market, but you can control your income withdrawal strategy.

5. How do changes in my personal life affect my financial situation?

If you can answer “yes” to any of the questions below, your planner may need to adjust your investment mix to provide for these changes.

  • Have you changed jobs or decided to take a buyout offer or early retirement?
  • Did you get married, have a child or become a grandparent?
  • Has there been a divorce, or is your son or daughter getting nearer to needing money for college tuition and expenses?
  • Do your grown children need temporary financial assistance?
  • Are you now helping to financially support a parent or parents?

6. What if I haven’t invested enough for retirement?

Talk to your financial planner about a number of possible strategies to help build up your assets prior to or during retirement:

  • Delay retirement until you are 65 or older. If you could use a few more years to invest, it may be worth thinking about staying in your current job or starting a second career.
  • Work part time in retirement. Bringing in extra income may keep you from using up your retirement savings too early. Nearly one-quarter of adults 65 to 74 years old are in the work force.
  • Reduce your spending during market declines. By cutting expenses in a down market, you can significantly lessen the financial impact on your portfolio. Retirees who move everything from stock investments to bond and money market investments risk missing out on the potential gains generated by stocks once they recover.
  • Contribute as much as possible to your retirement plan. If you are 50 or older, you may be able to make catch-up contributions that set aside an additional $5,500 for a total of $22,000 401k contribution for 2012. If possible, try not to borrow or make a large withdrawal from your retirement plan.

7. Are there any tax implications for my moves?

Did you sell an investment  in December, hoping that you could take a loss on your next year tax return? If you want to buy that same investment in the current yer, keep in mind you must wait for more than 30 days. Otherwise, you violate the “wash sale” rule and you will not get the benefit of the loss to offset other capital gains.

If you have never met with a financial planner before, check out my guest post at Get Rich Slowly on 8 questions you should ask before you hire a financial planner.

Be sure to consult a tax professional about this and other tax issues.

Source: Capital Guardian

photo by worshiphim24_7


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Comments | 5 Responses

  1. mishelle says

    do you have any specific financial planners, with reasonable fees, that you would recommend in the chicago ridge, il area?

  2. says

    I actually have a question I really hope you can answer. I have read 3 different articles in the last week that say it is a bad time to own bonds in your portfolio. Although they have not gone indepth and explained why they say this, but it was 3 different people. @ on Yahoo Financial and one I don’t recall. What is your take on the subject?

    • says

      @ Kevin At some point in time when interest rates go up, certain types of bonds will get hammered. We’re not expecting interest rates to go up for at least a year, so I wouldn’t be too worried yet.

  3. says

    Number 3 and number 7 are excellent tips. Sometimes financial planners don’t think ahead about the tax implications. Your tip about the wash sale rule is great, I would love to hear more about this section. Keep it up jeff!

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