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6 Planning Tips for Getting Paid With Equity

6 Planning Tips for Getting Paid With Equity

For those who are compensated partially or mostly in equity – as opposed to simply earning a salary – it’s important to plan for vesting, exercise, and sale. The tax code regarding equity compensation is fairly complex. Which means stock options provide opportunities for investors if the planning is managed correctly.

Equity compensation is an important component of your financial plan.

 

Similar to selling a business, you want to plan for these eventualities instead of allowing circumstances to determine your actions. That way you’ll take advantage of the opportunities that are open to you, in the time frame when they’re most tax-advantaged.

Equity compensation is just as important an asset as a house or other investments. It should be analyzed and folded into a comprehensive plan just as other assets are.

Because your equity compensation is in one stock, it creates a diversification problem if you don’t have a financial plan. If your investments are spread out among different accounts, it may be difficult to judge how much of your wealth exactly is concentrated in one stock. Developing a financial plan will help you gauge where you need to diversify.

In addition, many of the advantages of these types of strategies are embedded in the tax code. Developing the right strategy includes taking the opportunities provided by the tax code while marrying the shares with the investment plan. A financial plan with a qualified CFP® professional can help you achieve tax-advantaged wealth.

Equity comp isn’t just for startups, though it certainly applies to them as well! There are large firms all across the US that pay senior executives in equity. Whether the company is large or small, or the compensation itself is large or small, a financial plan that includes these assets is more of an asset to you, especially in regard to your retirement planning.

 

Type of Equity Compensation: Stock Options/Restricted Stock Units/Employee Stock Option Plans

 

Tax treatment varies across all these forms of equity compensation. Stock options may be Incentive (ISOs) or Non-Qualified (NQSOs). The timing of vesting, exercising, and selling the shares all must be done within certain limits to ensure their benefits are maximized.

Depending on the amount of these types of stock options, they may result in a concentrated position for the investor. Including these in the financial plan allows the financial planner to coordinate the asset allocation for the portfolio.

The plan will also take taxes into consideration. If you sell your $1 million in revenue accounting firm for its expected 1.2 times, your bank account isn’t going to balloon by $1.2 million once you take taxes into account. You’ll end up with substantially less with a cash payment upfront.

Equity Compensation Strategies: Net Unrealized Appreciation (NUA) and 83(b)

 

NUA strategies involve a tax-advantaged strategy for taking appreciated employer stock from the company’s retirement plan. The difference between the cost basis of the shares and the stock price at distribution is the net unrealized appreciation. Ordinarily the immediate sale of the stock results in an ordinary income tax on the difference. This can be significant for highly appreciated stock.

When the employee takes a lump-sum distribution with an NUA strategy, net unrealized appreciation is excluded from income. Tax is deferred until the company securities are sold. At which time they’re taxed at the long-term capital gains rate, instead of ordinary income.

This strategy has to be balanced against the risk of holding these securities long-term for a concentrated position.

Including the analysis in a financial plan will show the difference between taking the ordinary income hit while diversifying, and having a concentrated position for some period of time. But selling later at capital gains rates instead.

The 83(b) election is an opportunity to pay taxes on the value of shares when granted.

 

This may be especially valuable for startups, when the fair market value is likely to be lower. Otherwise the shares are taxed when vested.

If the company’s shares are growing, it’s best to pay taxes at grant. However, if the company’s shares decline, then it would have been better to pay at vesting instead.

A financial plan can take the place of a crystal ball.

 

Too bad it’s not possible to know how any company will perform in the future, especially a start-up! All founders and employees of newly launched companies assume that the stock will be more valuable in the future, otherwise they wouldn’t be working there. Your financial planner can talk you through this election, so you can make an informed decision.

Minimize the Risk of Concentrated Equity Holdings

 

Depending on how much of your compensation is in the equity of your company, you may be able to diversify away from this position in other accounts. Such as your regular taxable account or even your retirement account. Your financial plan will show how much needs to be peeled off from company stock over time in order to achieve the portfolio’s target allocation.

However, some firms require that their senior people maintain a certain amount or percentage of the portfolio in company stock. Or, you may be new to financial planning and simply have allowed the shares in your company to accumulate to this point.

Whatever the reason, your portfolio may be concentrated in one stock. A good financial planner can help you minimize the effects of holdings and take into account the cost of hedging. If possible, the planner may be able to set up a 10(b)5-1 plan that allows the regular selling of company stock, for certain officers of a company.

 

Are you on track for retirement?

Making sure you will be ready for retirement can be overwhelming. Funding your retirement accounts over the years is just one part of your journey to the retirement of your dreams. A Certified Financial PlannerTM can help you navigate the complexities of financial planning. Talk to a Financial Planner>

Equity Compensation: 10(b)5-1 Plans

 

At the top of the organization chart, there’s a tension to be managed. Ensure that the leaders of the company have sufficient “skin in the game” so that they’re incentivized to grow the stock as much as possible. Also make sure each officer can maintain a  sufficiently diversified portfolio.

Because the stock sales of certain eligible executives can be made public, it’s key for a healthy business to ensure that these sales don’t tank the stock price. It also protects the execs from accusations of insider trading. They can show that the stock sale was made in accordance to a plan filed with the appropriate regulators, for the purposes of diversifying their own portfolios.

The instrument for this is the 10(b)5-1 plan, named after its section of the tax code. Including it in the financial plan means that the stock sales will not adversely affect any other financial moves.

It also allows the planner to ensure that the portfolio’s targeted allocation will be reached in a certain period of time, by the scheduled sale of a concentrated stock position.

 

Executive Deferred Equity Compensation Plans

 

As with so many of the equity compensation strategies discussed here, timing and concentration of stock are key factors in deferred comp strategies. Technically 401(k) and pensions are deferred compensation plans too, but they are qualified plans administered by ERISA. Here we are referring to nonqualified plans for executives only.

The company sets aside a guaranteed amount of income for the executive, usually with provisions to pay out early if they’re disabled or die prematurely. It’s a good retention strategy to keep key employees at the company. Certain conditions must be fulfilled in order for the executive to claim the compensation at retirement.

Planning how to contribute and how to structure the payout is a crucial part of the employee’s financial plan. Because they’re nonqualified, a much larger amount can be deferred into an executive plan since they’re not subject to ERISA limits. The money is tax-deferred until payout starts.

 

However, as they’re not subject to ERISA, these plans do carry the risk that all the assets in the plan may be lost. Employees who are counting on this money at retirement could end up with an unpleasant surprise. That’s why it’s key to consider this as part of a financial plan, so that you understand the risks and know how much you can contribute without jeopardizing your retirement. These are usually utilized only by execs who have already maximized the tax-advantaged 401(k), FSA and HSA possibilities.

Equity Liquidity Events

When the company is merged, acquired, or sold, the senior executives often find themselves awash in liquidity. This is where a financial plan can be extremely important in order to avoid spending down the largesse, or even being taken advantage of by savvy salespeople.

Use a financial plan to manage or optimize a liquidity event.

 

A comprehensive financial plan is tailored to your specific financial goals. Managing a liquidity event properly can help you achieve those goals. It may even allow for new or bigger goals to be set, depending on the size of the event.

If you have kids to put through college, a liquidity event could be your answer. You might be able to prevent your children from taking on too much student debt. Most financial planning software systems contain recent data for costs for most colleges and universities in the US. There are tax-advantaged accounts that can be utilized as well (529 and 529ABLE accounts.)

Or you may be thinking about legacy planning, and a financial planner can help you do that in a tax-efficient way. There are a number of ways to set aside money for charitable purposes. Planning this in advance allows you to take advantage of the opportunities still left to investors in the tax code.

 

If you’ve identified a potential need for medical cost planning in the future, money from the event may be set aside in a specific vehicle for this purpose.

And so on; the money can protect against some “holes” identified in the household’s needs.

Your financial planner may also recommend the services of a trusted estate planning professional, who can set up the appropriate trusts and legal concerns. Especially in California, it’s important to keep as much out of a probate estate as possible.

Is equity compensation an important part of your financial life? Email us to discuss creating a financial plan today.

Dream. Plan. Do.

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

Selling Your Business? What’s the Plan?

Selling Your Business? What’s the Plan?

Let a financial planner show you the variables involved in selling your business.

 

For many business owners, selling their business is one of the biggest financial transactions they’ll ever deal with. It’s an important decision that has significant ramifications for retirement (and other) planning. Which means it’s important to develop a financial plan before the sale of the business.

Business sales: How much can you get for your business?

 

Business owners usually have a good grasp of their revenues and expenses year after year, by the time they get to the stage where they’re looking to sell the business. Most of them have already done some due diligence. They know what multiples businesses in their industry typically sell for, as well as the factors that influence this number.

Accounting businesses typically sell for about 1.2 times revenue, for example. Smaller, solo firms are easier to sell, especially when they’re up to date with the latest software. If you’re an estate planning attorney, you also need to have up-to-date software to make your practice look more attractive. They have similar revenue multiples.

Insurance agent? Normally your price is between 4.5 and 7.5 times earnings. Other businesses run on different multiples, but a competent business broker in your field (or a search through recent comps in your area) can give you a range to expect.

 

selling your business

If you know approximately how much you can sell the business for, then why do you need a financial plan before the sale?

You might be thinking that it will be easier to just wait until you have the money in hand before you do the plan.

How a financial plan can help you sell your business. 

 

Once your experienced financial planner has set up your goals and examined your financial information, inputting the sale amount is a fairly negligible amount of work. In other words, there’s no difference in terms of you gathering information and your planner working through the inputs as to whether you do it before or after the sale.

However, some of the business information that goes into the financial plan is also what buyers of the business want to see anyway. If you put it together for the financial plan first, it’s ready to go when buyers ask. You may be able to shorten the time it takes to close the deal by doing the plan first.

More importantly, when you run the plan before the sale is complete, your plan will include different scenarios that take the variables inherent in the sale into effect. You might find that one type of sale is better than another, because it allows you to retire when you want to. A different type of sale might mean you have to consider working for a longer period of time. Something you’d much rather know beforehand!

 

a financial plan can help you manage the taxes from the sale of a business.

The plan will also take taxes into consideration. If you sell your $1 million in revenue accounting firm for its expected 1.2 times, your bank account isn’t going to balloon by $1.2 million once you take taxes into account. You’ll end up with substantially less with a cash payment upfront.

3 key variables to plan for when selling your business.

number one

One of the key variables, of course, is the sale price. If you have a business that Google decides to buy for 8 figures, whether the price is a little on the high end or a little on the low end probably doesn’t really matter.

But if you’re an insurance agent with $1 million in annual earnings, there’s a potential $3 million difference between 4.5x and 7.5x. Depending on your lifestyle and your goals after sale, that could have a big impact.

And let’s face it, many business owners tend to inflate the value of their business. It is, after all, the business they worked so hard to build for all these years. Of course they think the goodwill may be a little higher than it actually is, or the price should be at the high end of the multiple range.

The buyers, on the other hand, have no incentive to pay high. They need proof that the business is actually worth 7.5 times in order to pay that amount. It’s pretty common for mismatches like these.

Know the Different Business Sale Scenarios Available to You

 

When the business owner does a financial plan ahead of time, they can look at scenarios along the spectrum and see what the potential effects of a lower payout are. They might have a floor for the sale, under which they can’t achieve a good retirement or other financial planning goals they have. They might not be able to leave a legacy behind as they had planned. They’ll know ahead of time which buyers aren’t going to work for them.

Or they may realize that their financial goals (based on the gross number) are too lofty for what’s coming in after tax and need to adjust. Better to know this ahead of time!

The financial plan can also tell a business owner how long they can hold out for the higher end of the range. Do they need an infusion of cash within the next year, or will any time during the next five years do the trick? The business owner may be able to wait for that higher payout.

Many financial businesses, like accounting and financial advisory firms, don’t sell for all cash upfront. They’re paid a trail, or portion of the earnings (or revenue) from retained clients, until the balance is paid out.

 

Are you on track for retirement?

Are you on track for retirement?

Making sure you will be ready for retirement can be overwhelming. Funding your retirement accounts over the years is just one part of your journey to the retirement of your dreams. A Certified Financial PlannerTM can help you navigate the complexities of financial planning. Talk to a Financial Planner>

Structuring the Sale of Your Business

 

How to structure the deal is important to know before the sale happens. And before any buyers are approached, so no one thinks they’ve experienced a bait-and-switch. If a larger deposit is necessary to shorten the trail duration, the seller needs to know that before any agreement is reached.

If they can afford a longer trail and smaller deposit, that might make it easier for them to sell to someone whom they like but doesn’t currently have a big bank account. Maybe a child, or mentee, or younger partner in the business.

number two

No one wants to sell with a smaller amount upfront only to find out that it puts their retirement plan in peril.

Preparing the plan ahead of time also helps provide the owner with an exit strategy. Does s/he need to stay on and earn a salary for a few years while the new owner gets up to speed?

Some buyers may want the owner to hand over the keys when the deal is signed, never to return again. Others may prefer to keep the previous owner on to make a more gradual transition. Knowing whether you need to stay on or not can provide leverage for the deal in other ways.

number three

Prepare Your Family for the Sale of Your Business

A key benefit, at least in terms of behavioral finance, is that by planning ahead of time and knowing where the money will go, there’s less chance to spend the money inappropriately. When a big payment comes from (seemingly) out of nowhere, unprepared family members may see it as a windfall, and not the result of a carefully thought-out plan.

Business owners themselves are usually pretty frugal with their money! But spouses or children may not be. It’s helpful for those who have spendy family members to bring them along to the financial planning meetings. (Spouses should always attend anyway, even if they don’t deal much with the investments.)

family counting money after sale of business

Knowing where the money is going when it reaches the family makes it seem like just part of the process when the money actually arrives, if everyone has been in on the plans. 

You might very well have decided to upgrade a family car or renovate the kitchen when you receive that first deposit, but you’ll have a budget for it.

The windfall doesn’t seem so sudden when it’s been planned for, discussed, and put on paper.

A financial plan helps you get the most from selling your business.

 

When you go to a financial planner who has the software but not the experience, you’re more likely to end up with a generic plan. Inputs go in the software, and outputs come out. Some of these software packages can generate hundreds of pages!

Some of the software packages have a blunt-force instrument that adjusts all the goals to bring the plan to survival. Your inexperienced planner can use this solve button.

But sometimes the results are ridiculous. Your budget might be cut in half to make everything work, which is usually not realistic at all. There may be some goals you need to give up on, or you may need to work longer than you originally desired. But both of these may be more palatable than halving your budget!

Experienced financial planners know that some issues and goals weigh more than others. If the plan doesn’t quite work, or the expected probability is too low, a CFP® professional who’s been in the trenches for a while has a good idea about what tweaks need to be made.

They can work with you to prioritize goals, so that you may give up on one or meaningfully reduce it in order to make the plan survive for your entire life.

A financial plan helps you get the most from selling your business.

 

In short, preparing the financial plan and discussing various scenarios and their expected effects prevents the business seller from unpleasant financial surprises after the deal is signed and closed. They’ll know which buyers they can rule out, if they have a minimum requirement for the sale price that allows them to achieve other financial goals.

Roadmap with pins showing financial milestones in a comprehensive financial plan.

If they’ve been thinking in terms of gross revenue, as many people tend to do, they’ll have the reality check of what the after-tax results will actually be. They’ll know if they need to structure the deal in a certain way to minimize taxes. Or if they can sell to someone who will need a longer period of time to pay off their commitment.

They’ll also be able to prepare their families ahead of time, which will help ward off any “windfall” spending. The plan will help reduce uncertainty for the spouse as well. Some spouses fear that the business owner is too optimistic, and having the financial plan at hand will help them realize that they will be all right, even in old age, as a result of the plan.

Are you thinking of selling your business? Email us to get started on your financial plan, so we can help you avoid those unpleasant surprises.

A financial plan from Platt Wealth Management

 

We are a fee-only firm that is a member of NAPFA (National Association of Personal Financial Advisors). We act as fiduciaries, putting your needs first. Both of our financial advisors are CFP® professionals, with years of experience in the field of personal finance.

We tailor our comprehensive plans to each client, ensuring that the plan is clear, well-organized and easy to follow. We continue to monitor the plans after they’re set up.

Email us to get started on your financial plan today!

Dream. Plan. Do.

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

Get the Right Financial Plan: Not All Plans Are Created Equal

Get the Right Financial Plan: Not All Plans Are Created Equal

 

A good financial plan is an important tool for a happy retirement.

 

As you (now) know, a comprehensive financial plan is an important tool for a happy retirement and the ability to achieve your financial goals. It’s your road map to financial success.

Most firms have flexible software packages that allow them to stress-test the plan under different financial scenarios. Any financial advisor now has the ability to develop a financial plan for you that includes an analysis such as a Monte Carlo simulation.

No, that doesn’t mean the advisor runs off to Monte Carlo and gambles with your money! This is a tool that generates random portfolio returns for the lifetime of the portfolio. The returns utilize the expected return of the portfolio, given its composition, and the standard deviation. Most Monte Carlo simulations include the “Great Recession” returns that the portfolio would have experienced at the time.

This analysis provides the probability that the portfolio will “survive” the random returns generated over its lifetime, given the portfolio’s composition, the investor’s financial goals and expected income and expenses over time. It’s a good indicator of the viability of the plan.

With today’s modern financial planning software, pretty much anyone can input the numbers and get a reasonable result out of the other end.

 

Should you let the software do all the work and not worry too much about who’s doing the plan?

No, because the software is just a tool.

You want the right person wielding that tool.

A financial plan from a credentialed financial advisor. 

 

It’s important that your financial planner hold a financial planning designation. The most well-known and accepted standard is from the CFP Board.

A CFP® professional has been through a learning course that typically takes 18-24 months to complete. Passed an exam, which may have taken one or two days, depending on when they obtained the certification. Plus, developed financial plans for clients for two or three years before being awarded the designation. Read how we exceed CFP® professional standards.

Thereafter, they are required to earn continuing education credits (including ethics) in order to maintain the designation. As you can see, it’s a pretty rigorous process, and the learning doesn’t stop after the designation is earned.

Financial companies are always innovating new products, laws and regulations continue to change. Just this year the SECURE Act was passed, which changes retirement accounts significantly. Your financial planner needs to stay on top of these changes.

By contrast, a financial advisor without the designation may not have any continuing education requirements. They may have some licenses issued by FINRA, the Financial Industry Regulatory Authority. Depending on what they sell and how they sell it.

Security licenses may take a month of study (or less) to obtain. An advisor with no financial experience at all is able to hang out their shingle once they’ve passed the exam. There’s no requirement for the advisor to have any length of practice in the field.

 

The CFP® professional will work with you on a continuous six-step financial plan process.

1. Define the relationship between client and planner
2. Collect the data, set expectations and develop financial goals
3. Analyze and evaluate
4. Create recommendations
5. Implement the plan
6. Monitor progress

A good financial planner won’t hand you the book of paper that the financial software generates and allow you to let it sit on your bookshelf.

It’s also helpful to work with a fee-only financial planner. They don’t charge commissions, so they normally don’t work with products such as life insurance and annuities. All CFP® professionals learn about insurance and annuities as part of the course work. They can identify when and where these needs arise.

Not everyone needs them, even though many salespeople like to sell them. These types of products pay out hefty commissions. There might be a conflict of interest for a planner who also sells these products.

Most fee-only planners have a trusted professional they will send their clients to if such a need is discovered during the six-step financial planning process. By working fee-only, there is no incentive to find an insurance or annuity need.

Your fee-only planner is also likely a fiduciary. Put simply, this means that they put the clients first, ahead of their own interests. The standard for financial advisors is lower, where their recommendations only need to be suitable for the client.

A financial plan from an experienced financial planner.

 

If your planner is a CFP® professional, they have experience in the field of financial planning. Having years of experience means that they know what the common mistakes are, and they can give their clients a head’s-up if they seem to be entering this territory.

It’s also important to hire a planner that has worked with clients like you before. They know the common mistakes, but they’re also empathetic to the concerns you have.

In addition to a comfortable retirement, legacy or passing wealth down to the next generation might be a concern. Selling your business and managing the effects of that sale are big questions for clients who own their own firms.

Many women at this stage in their lives find themselves sandwiched. Caring for children, who may be at or near college-age, and all the associated financial and emotional baggage. Trying to fund their own retirement and protect themselves in old age. And simultaneously dealing with aging parents.

It’s a lot to take on! Having a financial planner who has worked with sandwiched women knows exactly what a huge issue this is.

 

Are you on track for retirement?

Making sure you will be ready for retirement can be overwhelming. Funding your retirement accounts over the years is just one part of your journey to the retirement of your dreams. A Certified Financial PlannerTM can help you navigate the complexities of financial planning. Talk to a Financial Planner>

Your financial plan, customized to your needs.

 

When you go to a financial planner who has the software but not the experience, you’re more likely to end up with a generic plan. Inputs go in the software, and outputs come out. Some of these software packages can generate hundreds of pages!

Some of the software packages have a blunt-force instrument that adjusts all the goals to bring the plan to survival. Your inexperienced planner can use this solve button.

But sometimes the results are ridiculous. Your budget might be cut in half to make everything work, which is usually not realistic at all. There may be some goals you need to give up on, or you may need to work longer than you originally desired. But both of these may be more palatable than halving your budget!

Experienced financial planners know that some issues and goals weigh more than others. If the plan doesn’t quite work, or the expected probability is too low, a CFP® professional who’s been in the trenches for a while has a good idea about what tweaks need to be made.

They can work with you to prioritize goals, so that you may give up on one or meaningfully reduce it in order to make the plan survive for your entire life.

A financial plan is a tool you can use.

 

A pretty document with charts and graphs that look very nice and is provided to you in a lovely binder is utterly worthless if it sits on your shelf. Remember, the plan is a road map! It’s a document that changes as your life changes. It requires updating and monitoring as time goes on.

Consider a road atlas (if you’re old enough to have used maps!) There were maps in it with lots of detail, down to the street name.

However, it probably didn’t have a lot of detail on how the street was named, who named it, who used to live on it. Or the history of the county in which the street was developed, with lovely color pictures of what the place used to look like. Or pictures of when the road was built, or the homes and business that line it now.

Similarly, you don’t need a lot of extraneous detail in your road map. You don’t need pages and pages of colorful charts and graphs in order to understand and implement the plan. Most financial software systems come loaded with all kinds of charts and graphs. You just want the ones that are relevant to you, with the detail that you need to carry it out.

Most of the systems also come with the statistics behind the charts and graphs. Some people need to see the statistics so they can understand where the numbers came from, and satisfy themselves that the plan results didn’t just come out of thin air.

Others just want the top level summaries and prefer to leave the details to their planners. Either way is fine, and an experienced planner will provide the customized detail that’s right for you.

A financial plan from Platt Wealth Management

 

We are a fee-only firm that is a member of NAPFA (National Association of Personal Financial Advisors). We act as fiduciaries, putting your needs first. Both of our financial advisors are CFP® professionals, with years of experience in the field of personal finance.

We tailor our comprehensive plans to each client, ensuring that the plan is clear, well-organized and easy to follow. We continue to monitor the plans after they’re set up.

Email us to get started on your financial plan today!

Dream. Plan. Do.

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

Why a Financial Plan Should Be Your #1 New Year’s Resolution

Why a Financial Plan Should Be Your #1 New Year’s Resolution

Why is a comprehensive financial plan important?

 

For most Americans, a common financial goal is retirement. It requires saving and planning over time. It’s a journey, not unlike climbing a mountain such as Mt. Everest.

No one decides one day to climb the mountain and jets off immediately to blindly hike up the face. Climbers spend plenty of time in preparation, mapping out the routes, hiring a guide (Sherpa), collecting supplies, etc. Not spending enough time preparing could easily mean death.

Not preparing for retirement probably won’t lead to immediate death! But goals and bucket lists are more likely to be left unfulfilled.

Do you consider yourself reasonably successful in business, as many of our clients do? Well, did you achieve your success by throwing everything and anything at the wall to see what stuck? Did you start off doing whatever you felt like, without doing any research, guessing at what was going to happen? Randomly deciding one day what you were going to do, and then going out that very day and picking a task that seemed like a good one to start?

Of course not. You researched, you planned. You created Plan B in case Plan A didn’t go quite as … well … planned.

Probably you have a calendar or other type of organizer with your tasks created and deadlines set.

Same with your finances. Saving money, as most of you are already doing, is a great step. But it’s only a first step. In order to invest it properly, you need to know the timeline for when you’ll likely need the money. Retirement is a long-term goal. Even after you’ve retired, you might live a long time.

A financial plan considers your whole financial life. What are your other goals?

Will you be caring for a loved one: parent, child, spouse, in later life?

Are you thinking about how you’re going to pay for college for your kids?

What about travel?

Launching your own business, building a house by the lake?

Quitting your current job to spend more time with loved ones or on hobbies?

What will you do when sell your business?

Achieving goals isn’t just a matter of cost, or foregone income (depending on the goal.) It’s also about the timeframe available. Saving early and often provides a great deal of flexibility in later life, but the goals might still require some adjustments.

The comprehensive financial plan helps investors to prioritize their goals as well. Time on this planet and money available are both finite for most people. Tradeoffs are required. A good plan can show the costs of one choice over another. At the end, of course, it’s the investor’s decision as to what they prefer to focus on.

What is a comprehensive financial plan?

 

It’s a road map for the rest of your financial life, in which investments play an important, but not the only, part. A financial planner will help you identify and prioritize financial goals, and then help map out the steps to get to those goals. The plan will show whether the investor is on track to achieve their goals with current habits. It’ll help the advisor spot issues that need to be addressed.

No financial plan is guaranteed. As you know, investments aren’t guaranteed either. Over the long term, equities return 6-8% over inflation. That doesn’t mean a portfolio will grow 6-8% over inflation every year. Especially if it contains bonds and cash to diversify equity investments. They also lower the investment return. No risk, no reward.

But even an all-stock portfolio doesn’t perform steadily. Some years the return is higher, potentially much higher. In 2013 large company stocks grew 32% and smaller companies reached even higher than that. Obviously the converse is also true. Some years will be lower – significantly lower, even negative, as shown during the Great Recession.

Similarly, the financial plan will not exactly fit to what happens in life. Which tends to throw in detours along the way! When big detours happen, the plan should be reviewed to see if there are any changes that should be made.

Are you on track for retirement?

Making sure you will be ready for retirement can be overwhelming. Funding your retirement accounts over the years is just one part of your journey to the retirement of your dreams. A Certified Financial PlannerTM can help you navigate the complexities of financial planning. Talk to a Financial Planner>

Benefits of a financial plan.

 

During the process of developing the plan for a client, planners often come across needs that wouldn’t be found any other way. There are a number of different issues that can eat away at wealth, before the investor even has a chance to use or enjoy it.

Your Financial Plan Will Show How to Protect Your Assets

Sometimes there’s a need, even if temporary, for life insurance, for example. This is common among two-income families with young children. Should one parent experience an untimely death, the other will still be able to pay the mortgage and other expenses from the policy proceeds.

An umbrella property and casualty policy safeguards an investor’s assets in the event someone is injured on their property and sues. It could be a repair person who falls on the concrete walk, or someone who trips and falls at a party. The costs of an umbrella policy are relatively low compared to potential loss from a lawsuit.

 

Your Financial Plan Will Include Possible Medical Costs

Long-term care is an issue for many elderly Americans. Slightly over half the 65+ population will need it at some time during later life. This type of care is triggered when, even if just for a short period of time, the senior is unable to perform some of the Activities of Daily Living (ADLs).

These include dressing and feeding oneself, going to the bathroom, transferring (between seated to standing, for example), etc. The cost of hiring someone to perform this care isn’t covered by Medicare. In 2015 Americans spent $225 billion on long-term care. Fortunately, in addition to self-insuring, there are some ways to provide for it.

The number one concern for retirement planning is the cost of health care and unexpected medical expenses.

Your Financial Plan Will Show How Much You Need for Retirement

Social Security is an important component of retirement for many Americans, even when it’s not the major source of funds. Most people will claim more money over time by delaying collection until age 70 to obtain the highest benefit. What if you retire before then, or have a reduced income before you claim? How do you bridge that gap? The financial plan will help you figure it out.

Understanding your full picture: goals, values, personal dreams, and ambitions all fit into your financial plan and can help us give you advice to best suit the life you want to live.

We want to empower you to make the best financial decisions. Knowing that your advice is coming from a financial advisor who has your back and is looking out for you will help you be more confident.

How Platt Wealth Management prepares your financial plan.

 

Our CFP® professionals will need you to do some homework first! We need the household’s Social Security information, tax returns, spending and income information, along with some other info depending on your situation.

Because every client’s situation is different, our plans are customized for each household.

We’ll ask about your goals and dreams so the plan accounts for them. We consider the timeframes around these goals, as well as the costs. Our financial planner projects probabilities as to whether you’ll be able to attain these goals on your current trajectory.

It may be the case that not all your goals are achievable, at least with your current plan of saving and investing. We’ll show you what you would need to do to achieve the goals, and help you prioritize them where necessary.

A good financial planner is committed to finding the right solutions for you.

Your financial plan action items for the new year.

 

Once we’ve run the initial plan, we’ll schedule a meeting go over it with you. And your spouse (if applicable), even if they don’t normally participate in the investment activities.

We provide a way to think through any issues that may have been spotted during the process.

At Platt Wealth Management we don’t sell any commissionable products such as life or long-term care insurance or annuities. We are a fee-only fiduciary. However, we team with other trusted professionals who can provide them to you if we uncover a need. We don’t recommend anyone who doesn’t put our clients first!

Once the financial plan is complete, we want to review every few years to make sure we’re still on track. If anything significant changes, we need to rerun the plan. Job loss, divorce, inheritance from a parent – all of these are important changes that may mean a change in plan.

A financial plan is an extremely valuable tool for you, and we want to make sure that you have one. Send us an email or call us at 619.255.9554 to get started on your financial plan today.

Dream. Plan. Do.

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

3 Financial Resolutions To Adopt In The New Year

3 Financial Resolutions To Adopt In The New Year

The new year is an exciting time— a time for a change, fresh starts, new beginnings, and different adventures.

 

We have not only entered a new year but also a new decade, and with it comes rejuvenated energy to set off on the right track and reach your goals. January is a great time to review your finances and decide on your top 3 financial resolutions.

What financial goals and resolutions are you hoping to accomplish this year?

 

Making resolutions is easy; sticking to them is a whole different story.

A U.S News and World Report found that 80% of new year’s resolutions don’t make it past mid-February. 

We know the buddy system works for the gym, so why not use it for your financial health?

One way to help you stick with your financial resolutions this year is by teaming up with a financial planner to help you stay the course and motivate you to reach the goals you set.

Let’s take a look at the top 3 financial resolutions our team recommends this year.

Financial Resolution #1: Review your portfolio.

 

Your investment portfolio is an essential component of your financial plan. You might be self-managing your investment portfolio and are ready to delegate the day-to-day research and rebalancing. You might realize your current financial advisor doesn’t serve your needs. Now is the time for a strong financial resolution to get a fresh set of eyes. Active portfolio management will help balance risk and divide assets in a way that makes sense for your investing goals.

This year, be sure to take the time and have your portfolio reviewed by a professional. A fee-only financial advisor can help you reassess your goals as an investor and maximize your investment portfolio to meet those goals. A financial advisor will be able to help you:

 Assess your risk.

  • Your portfolio’s risk should align with your investment goals and timeline. Reexamining these factors will influence the type of assets you will invest in moving forward.
  • Your risk tolerance plays a big role in your investment strategy and will change as your goals evolve. As you near retirement, it is especially important to evaluate your risk tolerance and how it corresponds to your division of assets. Since you will need the money over a shorter time horizon, it might make sense to re-balance your assets accordingly.

Re-balance your portfolio.

  • Asset classes grow at different rates of return. As a result, it is necessary to periodically re-balance your portfolio to maintain your target asset allocation mix.

Avoid excessive fees.

  • You might be paying way more than you have to for management fees, commissions, and hidden fees. It might be time to switch to a fee-only fiduciary.
  • You might be paying more than you have to on advisory, management, and other related costs. Check your service level and affinity with your current advisor. Are you getting what you are paying for?

 

 

10 Questions You Need to Ask

Choosing a financial advisor can be overwhelming, especially when your insurance broker, bank teller and broker all call themselves a financial advisor. There are ten questions you should ask to find out who is best for you and your family. Please download our complimentary guide as a starting point when re evaluating your current financial advisor or when searching for a new financial advisor. Download Guide.

 Financial Resolution #2: Know your priorities.

 

What is most important to you? Where to you want to invest your most valuable asset–your time? Your finances should align with your values and priorities. Are you living your best life? The best way to find out is with a comprehensive financial plan.

A comprehensive financial plan takes into account your financial goals, responsibilities, aspirations, and resources. Chose a scenario that will best suit your short-term and long-term goals.

Here at Platt Wealth Management, we have a 4 step approach.

 Discover. We want to learn about your financial goals and the pain points you have experienced along the way. What keeps you up at night? We seek to know your passions and values. What do you dream about doing?

Create. We create a custom financial plan that illustrates both where you are now and where you want to be in the future.

Execution. After you choose the plan that works for you, we ensure it gets implemented. We also provide the tools and resources (professional and educational) you will need to be successful.

Monitor. The one predictable thing about life is that it is always changing. We stay engaged through proactive planning to keep you on course.

 

 #1 Financial Resolution: Protect your assets.

 

You have worked hard for everything you have earned throughout your career. An essential financial resolution is to protect those assets. Entrepreneurs need to be especially aware of protecting their assets. This year, make it a priority to put designations in place to help protect yourself. Below are a few suggestions to get you started:

  • Separate your business and personal finances.
  • Create a legal structure for your business (corporations and LLCs provide a corporate shield of asset protection).
  • Have updated insurance for all of your assets (house, car, business, etc.).
  • Diversify where you can. For example, you could put some assets in a trust to help protect them as they are managed from a third-party.
  • Use your retirement accounts. These accounts (401k, 403b, IRA) protect your assets from creditors.

The most important thing is customizing your experience to fit your needs. A fee-only financial planner will be able to work with you to discover the vision you have, help you bring it to life, and adjust along the way so you can live the life you want.

Here at Platt Wealth Management, we are passionate about helping you live the life you want. Schedule a call with us. We would love to help you establish and achieve your financial resolutions this year.

We can help you achieve your financial resolutions this year.

Use the buddy system to maximize your financial health and complete your financial resolutions.

 Your best-interest should be at the heart of your financial advisor. As a fee-only fiduciary firm, we work our best every day to help you reach your goals. Creating a dynamic of trust and transparency is crucial to who we are as a financial advisor, and we want to help you get into top financial shape.

Dream. Plan. Do.

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

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