Barry Realizes He is Missing Out

Welcome to this week's edition of The Weekly Trail Report, where we share,

1 Story, where real stories of architects and engineers meet tailored financial strategies,

1 Actionable Tip, to provide actionable insights and guide you towards financial success,

1 Financial Term, to demystify key concepts and empower your decisions.

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1. Story: Barry Realizes He is Missing Out

Barry showed up to our initial meeting with a lot of questions.?

He was already working with another financial advisor but didn’t feel like he was getting out what he was paying.

He didn’t know quite what was missing, but something felt off to him.

When I asked him what felt off he replied,?

“I barely ever talk to the guy. He manages my investments but I don’t even really know what that means. I have questions I want to ask but it doesn’t feel like he is willing to help me with other areas of my financial life”.

Unfortunately, Barry’s situation didn’t sound all that unique to me.?

This is what I would call the “traditional” approach towards personal finance. You save up a bunch of money and then hire someone to “manage” it.?

That person might take some time to talk to you about your retirement, but they don’t typically dig deeper than that. They’re entirely focused on the assets they’re managing for you, and the rest of your financial life is up to you.?

As I said, this is what I would consider the “traditional” approach to personal finance. Today, many advisors have moved towards a more holistic approach.

“Well, let’s dig in,” I said, “tell me your questions you haven’t been able to get answered.”

Here’s what he had:

1. Am I paying too much in taxes? How can I pay less?
2. I want to take my family on a trip to Europe this fall, how can I make that happen?
3. Right now I’m making minimum payments on all my debt, but I feel like I should have more of a strategy. What should I be doing differently?

“Those are all great questions,” I replied, “and to answer them I have to ask a few questions of my own so I have a better understanding of your goals and current financial position.”

So we talked about Barry’s goals (personal, professional, long-term and short-term). We had a great conversation, and in addition to getting to know one another better we came to the conclusion together that Barry’s One Thing was to have more time.?

“So now that we know what you want your money to do for you, it’s just a matter of finding and executing the path that will get you there.”

Some ideas I shared with him were:?

1. Dedicate cash flow towards paying off debt now to free-up cash flow in the future
2. Diversify investments so he had more than just retirement accounts
3. Create a dedicated travel savings account to fund larger trips on a regular basis

As we took a closer look at the accounts he did have, we realized all of his retirement accounts were in a traditional, no Roth. He had life insurance, but as the sole income for his family, it was less than it should be. He also didn’t have an estate plan in place to protect his wife and kids should the unthinkable happen.

“See this is exactly what I’ve been missing,” Barry said, “my current advisor didn’t ask me about any of this stuff.”

Barry realized he was paying his current advisor too much money and getting too little in return. He wanted an advisor he could build a relationship with, who knew the intricacies of his full life and not just his estimated retirement date.?

“I didn’t even know there were advisors out there who did things differently.”?

But now that he did, he knew he wanted to have someone in his corner he could ask specific questions, who knew enough about the different factors in play that they could help him make educated decisions.

2. Actionable Tip: Know What You Want in an Advisor

Before you trust someone to manage your life’s savings, or give you advice on what to do with your finances, you should have a very clear idea of what you expect that person’s role to be.

Are you just looking for someone who knows the markets and can be trusted with your portfolio?

Or,

Are you looking for someone who will help you manage your day-to-day financial life?

Someone you can go to with questions before making a big purchase or significant life change?

Someone that you talk to on a regular basis?

Only once you know what you’re looking for can you find the right person to do the job.

3. Financial Term: Traditional vs Roth

Retirement accounts come in two main flavors.?

Traditional and Roth.

Simplistically, a Traditional account is pre-tax and a Roth account is post-tax.

However, there are a few other things to know.

Traditional:

• Pre-tax in, tax-free growth, taxed on withdrawal
• Early withdrawal penalty if before 59-? years old (10% of withdrawal)
• Subject to Required Minimum Distributions (RMDs) at age 73
• No income limit to contribute (income limit for tax deduction)

Roth:

• Post-tax in, tax-free growth, no taxes on withdrawal
• Can withdraw contributions at any time with no penalty (investment gains are subject to 10% penalty if before 59-1/2)
• No Required Minimum Distributions (RMDs)
• Income limit to contribute (and requires earned income)

Happy Trails,

Ryan

Disclaimer: We employ fictional characters to illustrate financial concepts faced by individuals in the architecture and engineering industry. Any resemblance to real persons, living or dead, is coincidental. While the stories are inspired by our experiences, the specific details, circumstances, and outcomes mentioned are entirely fictional and created for educational purposes only. Real client information is strictly confidential and never disclosed without explicit consent. Our aim is to provide relatable examples for educational purposes, respecting the privacy and confidentiality of our clients.