I’m Young. I Don’t Need A Financial Planner. Right?

Last week I got a phone call from a young client of mine who had a question on what to claim on his W4. He was starting a new job and wanted to run it by me. I was happy to help walk him through it, but made sure to ask what he was planning on doing with the retirement account he had been contributing to with his previous employer and what his new employer offered for retirement options. It was a simple enough question, but it opened up a conversation I was glad we had. It went something like this:  

Me: Okay, so you’re rolling the assets over to your new employer’s plan. Do you know what investment vehicles they offer and what the match might be like? If any? Or what the vesting period is like? 

Him: They told me I could roll it right over so I’m going to do that. And I’m not sure… I know there’s a 3% match but I don’t know how it’s invested. They have a lot of options so I’ll pick a more aggressive one. It’s for retirement so I can be aggressive right now. I’m not touching it for thirty years. 

Me: Just make sure you talk to the advisor for the plan. You don’t want to just pick a fund without understanding it. How much are you contributing on an ongoing basis? 

Him: I’ve been putting 8% of my salary into the plan. I’ve been told 10% is a good figure but that’s a little high for me right now. 

The back and forth went on for a bit longer, but it was at this point in the conversation I knew we should have a financial planning meeting. Why? Two things. 

1. It was clear that my client was putting money into his 401(k) without considering other options. While a 401(k) is great for most, other options can sometimes be preferred. 
2. He was arbitrarily putting 8% into his retirement without having a solid reason why. It just ”felt right.” Shooting from the hip is not something you want to do with your finances. 

What’s my point? 

The point is, this isn’t an uncommon conversation for me. I talk to younger professionals all the time while preparing their taxes who don’t know what their investment options are, assume because they’re young it’s simple or that there is time to figure it out later, or that as long as they are contributing to their 401(k) they are doing the right thing and can stop there. Here’s the thing: It’s usually not that simple. To put it in simple terms, they often don’t know what they don’t know. If I could get one message out to people in their twenties or thirties, it would be to talk to a financial professional.

Is a CPA or Financial Advisor more expensive than TurboTax or a robo-advisor? No! (see what I did there? You thought I’d say yes). I can’t speak in absolutes, but I am confident that working with a CPA or financial advisor may cost some money up front, but in the long run, will reduce headache, uncover opportunities, and set you on the right financial path, often putting you in a much better position. Turbotax and robo-advisors are cheaper now, but the lost opportunities can cost significantly more. 

So what happened with my client? After he discussed his plan options with his new employer, we had our meeting. We determined that he should contribute to his 401(k) up to the match, but beyond that, he was better off contributing to a Roth IRA. After we budgeted, he is now contributing less to his retirement and instead we opened a life insurance plan to cover his family. Once we knew the big picture, these decisions are allowing him to reach more of his goals for essentially the same amount of money as he was contributing to retirement before. 

So the question becomes, are you confident you’re not missing any opportunities? If you’re like most people I talk to that have never worked with a CPA or financial advisor before, there’s at least one thing you could be doing differently. Give me a call and we can find out what it is.