UNDERSTANDING YOUR FINANCIAL PLAN

At?Falcon Wealth Advisors, the customized financial plans we develop for our clients are the foundation for so much of our work. I’m pleased?Jake Cross, CFP?, a financial planner on our team, joined Cory on?Upticks?to discuss how clients and all investors can better understand their financial plans and get the most value from them. A summary of Jake and Cory’s conversation is below.

Cory:?Jake, a basic question to start: why does someone need a financial plan?

Jake: A financial plan helps you put everything in your financial life in one place. As fiduciary wealth advisors, it enables our team to make better decisions today because we’re able to project in the plan how different choices will affect a client’s financial future.

Cory:?Some people think they don’t need a financial plan until they’re nearing retirement, but that’s not the case. What are the key components in a financial plan?

Jake:?Some components of a?financial plan?will be more relevant to some clients than others. But they often include retirement income planning; tax planning; estate planning; insurance planning; education planning for loved ones; charitable giving; and more. And many variables—especially our nation’s tax code—can affect these components, so that’s why we like to meet with clients at least once a year to review their comprehensive financial plan.

Cory:?Yes, and financial planning changes over the course of your life. Life insurance, for example, is going to be more relevant for a younger person with a family than someone who’s retired. That’s why the financial plan is intended to be a living and breathing document that keeps your goals and priorities top of mind.

Before we even begin investing for a new client, we build them a financial plan because we need to know their priorities and goals. Knowing this is necessary so that we can invest in a way that fuels their financial plan for the life they want. At the end of the day, we want to help all our clients understand what their financial plan means to them.

Jake:?That’s well said about a financial plan being a living and breathing document. Your plan changes as your life does.

Cory:?Indeed. Jake, what components of financial planning are too often overlooked?

Jake:?Estate planning is the first that comes to mind. I think it’s because many advisors aren’t well versed in it, and it’s not an easy conversation to have. But it’s such an important topic for you, your family, your favorite charities and others.

Cory:?Agreed. Insurance is another. As your income and assets change, it’s critical to be insured properly. In my experience,?reviewing your insurance coverage?is something people don’t do often enough.

Jake:?And your regular meeting with your fiduciary wealth advisor is actually a good time to take stock of your insurance coverage, because you often talk through your assets when you review your financial plan.

Cory:?A quick success story: I have a client who is completing flight school to become a pilot. He reached out and asked about life insurance, as flying a plane involves some risk. I love getting these questions, because it shows me this client understands their comprehensive financial plan.

Let’s dig into the process of building a financial plan. What data points are crucial for you as you build a plan for a new client?

Jake:?There’s two main areas. The first is quantitative—we want to know asset values,?types of assets, investment vehicles, spending habits and more. But we also want to know some qualitative things, including?legacy planning?and giving and a client’s behavior toward money. This is so that we can give them useful advice.

Cory:?Many of those components you mentioned change as time passes. How often should someone review their financial plan with their?fiduciary wealth advisor? What life occasions warrant reviewing the plan?

Jake:?In general, it’s important to review once or twice a year. Sometimes clients may think nothing has changed that would affect their plan, but our team finds something that has.

There are many life events that cause people to want to review their plan. If you move into a more or less expensive home, that will certainly affect your financial plan. A death in the family and questions around being a beneficiary is another consideration. Planning for a child’s college education is one, too. If there’s a big milestone in your life, let’s meet.

Cory:?And speaking of education, student loan payments are resuming soon and that is certainly something that will affect financial plans.

A common financial planning question we receive from clients is when should they begin collecting Social Security. What do you tell them?

Jake:?This is a difficult decision. Because none of us know when we will pass away, it’s difficult to be sure that you’re definitely making the right choice, as there is a break event point. At?Falcon Wealth Advisors, we use math and longevity assumptions to make decisions. Still, it’s difficult to feel 100% confident you’re making the right choice. We instead aim to help people make choices they’re comfortable with and that align with their financial plan.

One thing we consider when deciding when to begin taking Social Security is a client’s target rate of return. If it’s on the high side, we may want to go ahead and begin collecting Social Security so they can leave more money invested. If they don’t need to be invested as aggressively, we could wait to collect and let the Social Security benefits grow.

Cory:?And it doesn’t matter what someone on TV or social media says about when to collect Social Security. It really varies from person to person based on their financial plan. This is why we build the plan and have relationships with clients.

Jake:?Yes. We’re able to use our financial planning software to see how the plan will be affected by decisions around Social Security.

Cory:?Another question related to financial planning. How do you help a client decide if they should pay cash or finance a big ticket item like a house, car or boat?

Jake:?We’re asked this often. What drives this decision is math. If your mortgage is 5% and your?target rate of return?is 7% or 8%, it may make sense to leverage debt and leave more money invested. Your emotions also play a role in this decision. Some people detest debt so much that they want to pay cash, even if we think it makes more sense to finance. We are an unemotional third party who strives to help clients make the correct decision and decisions they’re comfortable with.

Cory:?And the tax impact of paying cash is another consideration. If you want to take $500,000 out of a pretax IRA to buy a house, that’s going to have a significant impact on your tax returns. These are the types of decisions we help?Falcon Wealth Advisors?clients sort through, because there’s not a one size fits all answer.

Do you have any examples of how a well-designed financial plan has a positive impact on someone’s financial well being?

Jake:?One that stands out is a retired client who had a lot of company stock in their 401(k) plan. We implemented a complex tax planning strategy called?net unrealized appreciation?that saved them thousands of dollars in taxes stemming from?required minimum distributions.

Cory:?And that’s why financial plans are so critical.?We need to be able to see the big picture?to be able to pursue strategies like net unrealized appreciation.

At?Falcon Wealth Advisors, we have heard from hundreds of clients about what they’ve done well and what they would do differently. We’re able to?pass that wisdom along?to all our clients, and it’s difficult to put a value on this.

Thanks so much for joining me, Jake. If you don’t have a financial plan, please contact?Falcon Wealth Advisors?today. Let’s meet and talk about how we can offer you the customized advice you need to achieve your financial goals. You can contact me directly at?[email protected].

Clients choose to work with us to enhance their financial literacy and explain exactly what?their?financial plan means to?them.

Hightower Advisors, LLC is an SEC registered investment adviser. Securities are offered through Hightower Securities, LLC member FINRA and SIPC. Hightower Advisors, LLC or any of its affiliates do not provide tax or legal advice. This material is not intended or written to provide and should not be relied upon or used as a substitute for tax or legal advice. Information contained herein does not consider an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Clients are urged to consult their tax or legal advisor for related questions.