Financial lives are complex. From saving, to paying off debt, to investing, all the while minimizing taxes along the way, we’re faced with a seemingly endless series of financial questions throughout our lives. And as soon as you answer one financial question, another is likely to crop up in its place.
This is why people often choose to work with a financial advisor. A Sonoma County financial advisor can be a great resource and aid in helping you navigate life’s financial complexities. A financial advisor in Sonoma County can help you address many of the common questions below in more detail.
People often fall into two broad categories: Planners and Pantsers.
Planners like to have everything mapped out ahead of time. They may have perfectly crafted responses to questions like, “Where do you see yourself in five years?”
Pantsers, on the other hand, prefer to fly by the seat of their pants and react as oppose to plan. They’re more interested in taking things one day at a time and seeing what comes. They may see fine-tuning a plan as hours that could have been better spent living in the moment.
Regardless of which category you fall into, you can benefit from a financial plan.
You may know where you want to be in the next five years, but do you have the right plans in place to make that happen? For example, you may want to retire at age 60, but do you have the right strategies in place to ensure you don’t outlive your money? Or what if something happens along the way that changes those plans? Are you able to adjust on your own?
A financial plan is a guide to achieving your long-term goals. These goals can be big, like saving for retirement or buying a house, or smaller, like taking a vacation next year. While smaller goals may not need a very robust plan to achieve, the long-term financial goals that make it happen should not be left up to chance.
A financial plan can help determine what it will take to reach your goals and then address the best way to reach them. A financial plan can also help you navigate big life events that may get between you and your goals, such as having a child or going through a divorce.
In short, if you have financial goals, you need a financial plan.
Retirement is one of the biggest financial goals for many of us, so how to maximize your retirement benefits is an important part of financial planning.
One of the simplest ways to leverage your retirement benefits is by waiting to claim Social Security. While workers are eligible to start taking Social Security at age 62, starting before your full retirement age (66 or 67 for most workers) can reduce your monthly benefits. On the other hand, each year you wait up until age 70 to take Social Security can increase your benefit by quite a bit.
It’s also best to not be working when on Social Security. If you start collecting Social Security before full retirement age and are still working, your benefit will be reduced. Once you reach full retirement age, the penalty for working while on Social Security is less, but it will still cut into the full benefit you could have received had you not been working while collecting.
The challenge with timing your Social Security benefits is making sure you don’t wait so long that you end up needing to tap other income sources in retirement. A financial advisor can help you determine the best age for your long-term goals. And remember, retiring in Sonoma County is different than in other areas, so working with a financial advisor in Sonoma County, if that’s where you plan to retire, can be beneficial. He or she may be aware of local programs and benefits that you might not be, as well as what it will cost to live comfortably in Sonoma County in retirement.
Another common Social Security planning question is how couples can maximize their benefits.
The spousal benefit is equal to 50 percent of your spouse’s benefit. If your spouse had significantly higher income than you during your working years, it may make more sense to claim the spousal benefit as opposed to your own. Even divorcees can claim a spousal benefit of 50 percent of their ex-spouse’s benefit provided certain conditions are met.
To claim a spousal benefit after divorce, you must:
- Have been married to your ex-spouse for at least 10 years
- Be age 62 or older
- Have an ex-spouse who is entitled to Social Security benefits
- Be able to get a larger ex-spousal benefit than you would receive based on your own earnings
The ex-spouse spousal benefit is available to you even if your ex has remarried. There are exceptions if you remarry however, so talking with a financial advisor after a life-changing event such as divorce is wise.
Paying too much in taxes is like giving the government an interest-free loan on your money all year. Even though you’ll get any overpayment back in the form of a refund come tax season, all the months between now and then are months the government is making money off of your money instead of you.
It’s easy to tell if you’re paying too much in taxes simply by looking at the size of your tax refund. A clear sign that you’re paying too much in taxes is if you get a large tax refund. The larger your refund, the more you’ve overpaid in taxes. If you get a large refund year-after-year, consider adjusting your withholdings.
Often people end up paying too much in taxes when they don’t update their W-4 after a major life change. Common life events that can cause you to pay too much in taxes include:
- Getting married
- Having or adopting a child
- Taking on a second, non-wage job
- Qualifying for a tax credit, such as the education credit
- Increased tax-deductible expenses
If working with a financial advisor in Sonoma County, ask if he or she has a tax professional in-house who can help determine the appropriate withholding amount for your situation.
Estate planning is an often-overlooked aspect of financial planning, because estate planning is often the last thing on people’s financial planning lists. It only seems natural to procrastinate this final element of financial planning. But having an estate plan in place is important for many reasons.
An estate plan is designed to protect your assets and your loved ones. It’s there to make sure your worldly goods go to who you want and under the terms you want. If you pass away without a will, your assets will go through probate, wherein the courts will decide who gets your assets. And chances are, you won’t like it.
Having an estate plan is a kindness to your heirs not just so they can avoid the grueling probate process, but also to help minimize any strife between them after you pass away. If you leave your loved ones with a clear plan as to how your assets should be divided, there is less room for arguing over who should get what.
If you have young children, an estate plan is even more important. Your estate plan will ensure your children are cared for in the event of your death by letting you designate who should be their legal guardians. Without an estate plan, decisions around guardianship for minor children fall to the courts.
Women and men lead different financial lives.
Generally speaking, women tend to take more time out of the formal workforce to work at home, raise children, and care for aging parents than men do.
When they are in the workforce, women often earn less than men.
Because of this, many women have fewer resources come retirement. This problem can be exacerbated by the fact that women tend to live longer than men.
For these reasons, women need a different approach to financial planning.
Financial advisors in Sonoma County who specialize in financial planning for women take into account these gender-specific issues. They can look at the financial challenges specific to women and how women can leverage their financial resources to overcome them.
Ultimately, a good financial plan is as individual as you are, and the best financial advisors in Sonoma County know how to help you prepare the best plan for you.