Financial Planners Improve Your Financial Health
Many 401k plans today provide participants with a financial planner or a retirement adviser. If your 401k company provides you with professionals like that, take advantage of the opportunity to work with them. The advice they give you could improve your financial health.
It makes good financial sense to have a team of advisers; each team member providing you different expertise.
Your team should consist of your personal accountant, insurance agent and personal financial planner or retirement adviser.
What you want from the financial planner or retirement adviser is help with your retirement income planning: your 401k investing, your asset allocation model and your investment choices within your 401k account.
How To Improve Your Financial Health
To be financially healthy you need financial balance, financial stability, direction and commitment. Your team of advisers should be helping you with that; if they aren’t, get a new team.
#1 – Financial Balance - Retirement Income Planning
- Your retirement income will come from several sources, not just your 401k investment accounts.
- As the retirement expert, your retirement adviser should analyze all of these sources.
- Retirement income planning is the review of your 401k account, your Individual Retirement Accounts, social security and your other personal savings.
- How much will each of those sources be able to provide you at retirement?
- Your financial planner or retirement adviser can run projections for you to determine that.
- Those projections will be the base from which you will build your retirement plan from.
- Retirement income planning analyzes your entire retirement picture for you: different ways you can save for retirement; take advantage of free money from employer matching; invest all raises and bonuses and avoid 401k loans.
#2 – Financial Stability - Investment Choices
- Your best investment choices are those that fit with your financial goals, risk tolerance levels and time horizon.
Your Risk Tolerance
- The type of investment choices you make are based on your comfort with risk.
- Your comfort with risk changes over time.
- As you get closer to retirement, you may see yourself becoming more uncomfortable with high risk.
- If risky investments keep you up at night, choose a more moderate or conservative investment.
- Ask your retirement adviser to show you the financial data on an investment risk before you purchase it.
- Money market or a cash equivalent would be a very conservative investment.
- Large cap mutual funds could be considered a moderate investment.
- Mid cap and small cap more risky.
- International is considered by industry standards to be a risky investment choice.
- Ask your financial planner to give you a risk test.
Your Time Horizon
- Your time horizon is the amount of time you will be investing until you need to withdraw for retirement.
- This is how long your money will remain invested.
Your Asset Allocation
- Do you have all your eggs in one basket?
- Review your entire portfolio to make sure you assets are diversified or spread out between cash, stocks and bond investments.
- Staying diversified helps smooth out the upward and downward swings of the markets.
#3 – Financial Focus & Direction
- If you want your retirement investments to last throughout your entire retirement years; you need to stay focused on building up your retirement investments.
- Develop a long-term retirement plan.
- Periodically review that long-term plan with you.
- And you, you need to stick to the plan.
#4 – Your Commitment
- You and your teams must stay committed to building and growing your retirement accounts.
- To be financially health you have to start with the desire to be.
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