John Kennedy, CFP® has been our guest for the last two weeks on the Manage Your Money God’s Way podcast.
Last week we talked about what to consider when you are looking for a financial planner, the questions to ask and the background work you need to do. This week is about the benefits of using a financial planner.
John and his wife have taken both the Navigating your Finances God’s Way and Set Your House in Order Bible studies. They could be considered financial experts. John is a certified financial planner and has responsibility to his clients as a fiduciary. John’s wife has a career in corporate finances. Even though both of them had financial backgrounds and were “numbers geeks” the Compass Bible studies were critical to their financial communications as a couple.
The Navigating Your Finances God’s Way study taught them skills that are helpful to everyone, especially a married couple. With John being a financial planner, it was easy for him to slip into the role of expert when it came to family decisions on how to give, save, invest and spend. And it was easy for his wife to allow him to assume that role. A game changer for them from the Navigating class was that all financial matters in a marriage are joint decisions between a husband and wife who need to be in agreement. He also indicated the studies opened his eyes to situational awareness of working with a married couple in his financial planning practice.
The experience of John and his wife are in support survey results that indicate 78% of the couples who took the Navigating class together said their marriage was strengthened. Money can be a controversial area in a marriage and the Compass Bible studies provide a non-confrontational platform for financial discussions.
Early in their married life, John and his wife set a priority of saving 20% of their income and because that goal was set, they were able to stick to it through career and life changes. Their savings is allocated for various purposes; emergencies, retirement, college funds, investments, and Health Saving Accounts.
According to John (and many other financial planners), the best time to start saving for retirement is the first day you start working. The more you save and plan ahead, the longer time your money has to grow, based on the principle of compound interest. So, do yourself a favor and start early.
The amount you should have saved for retirement varies based on age and income. Income during working years relates directly to the income you will need in retirement. How much you should have saved for retirement at any point in time is based on your age.
The link below will help you walk through plans for retirement. Pages 13 and 14 provide a checkpoint for how much you should have saved based on your age and current salary. For example, on page 13 if you are 50 years old, making an income of $70,000. You should have 3.9 times your salary ($273,000) saved to provide the income you need to maintain your current lifestyle in retirement.
J. P. Morgan Guide to Retirement
If you find your savings are short of the benchmark for your age, take advantage of any and all matching funds your employer offers. If you pass up the matching funds, you are leaving free money on the table, so why not take advantage of it!
Very few people understand the employer match. They may think they can afford to save one or two percent, but they think 6% is too much. What they fail to understand is that employer match is based on pre-tax money so your take-home pay is not reduced by 6%.
Here’s an example. Joe makes $2,000 gross per pay period and his deductions are 22%. With no retirement savings, Joe’s net salary is $1,560. Joe decides to maximize the 6% employer match. Six percent of his gross pay is $120, with the employer matching Joe’s contribution dollar for dollar. Joe adds $240 to his retirement account each pay period. His take home pay is reduced by $94. ($2,000 – $120) x 22% – $1,466. That is a deal too good to pass up!
In addition to matching retirement funds, many employers also offer matching funds for Health Savings Accounts (HSA), which are for high deductible health care plans. These funds provide triple tax advantages as they are from pre-tax income, they grow tax-free and are used tax-free. There are rules for use and most of them will roll over to the next year if not used. The HSA is different from a Health Flex Spending Plan, so be sure you know which you have and the policies you have to follow.
Many employers are now offering an incentive for their employees to pay off student loans. If you are in your early 30s, retirement savings is impossible if you are buried in student debt. If your employer offers matching funds to pay off your student loans, jump on it!
The benefit of using a financial planner is that they will take a look at your entire financial picture and provide you with the information you need to make informed decisions to help you meet your goals. If you have not saved anything and are worrying about retirement, they can take a look at your total financial picture and give you advice on how to get from where you are to where you want to be in a logical and organized fashion. Maybe you need to increase the amount you are saving by one percent every 6 months, or maybe you need to concentrate on paying off high-interest debt or maybe you just need to rein in your spending.
A financial planner can provide wise unbiased counsel to help you meet your goals by taking a look at your total financial picture and offering advice.