Financial Planning

Lack of Financial Information Is No Longer the Problem. Knowing How to Process It Is.

The key to good financial decisions is knowing how to sort through the flood of information out there. How do you do that? Ask the right questions. Specifically, these five.

Thanks to new technologies, investing is more accessible than ever. You can buy stocks, bonds and mutual funds with a click of a mouse, or even with an app on your phone. As a result of these technologies, we now have more, faster and cheaper information. This is good news for investors, but is it too good?

Because information is coming at us so quickly — and from so many sources &mash; it isn’t always clear what we should do with it. It’s also not always clear how credible the information is in the first place. What your friend says on Facebook may be old news or, worse yet, clickbait. A TV talking head may be sharing an exaggerated story designed to grab more viewers. And a financial salesperson’s pitch might focus on all the benefits of a product or strategy without a fair look at the potential downsides.

I Bet You Answer This Question Wrong

On top of that are your own biases and beliefs — bits of information you’ve collected and stored through the years that color your thinking unconsciously. You’re so sure they’re true, you don’t even ask questions or do research to check them out and verify.

Here’s an example: Every time I speak to groups about retirement planning, I ask the audience to tell me what color a stop sign is. Of course, they say red and white.

Then I ask them what color a yield sign is. It’s yellow and black, of course. Everyone in the room is sure of it; they don’t look it up on their smartphones or ask the people nearby what they think. They just shout it out.

But they’re wrong. In 1971, all U.S. yield signs were changed to red and white. Full disclosure: I was born in 1973, and I got this wrong the first time I was asked.

And that’s how we often treat financial matters. There are ways to get the right answers — if you ask the right questions of the right people. But we tend to go with what we think we know.

What’s missing today isn’t access to more information. It’s having a clear process to filter out the myths, misconceptions and misunderstandings about finances and retirement — your own as well as what you hear from others.

Money Falling Through the Cracks

What’s scary is the fact that these blind spots can cost you money without you even knowing it. And you may not find out for years … or ever. Meanwhile, many thousands of dollars that you could enjoy during retirement could be falling through the cracks in your financial plan.

If you can’t afford that — or you just don’t want to lose your hard-earned money when you don’t have to — you must improve the way you analyze and evaluate each product and strategy you’re being offered. One way to do that: Know the right questions to ask before committing to a big financial move.

Here are five important questions to ask when you’re making crucial financial decisions:

1. Have you adequately reviewed my personal financial situation to make sure this recommendation is in my best interest?

This is super simple, but nobody asks it. Be sure every investment in your portfolio has a purpose; don’t settle for an off-the-rack financial plan. If you don’t feel that the financial professional knows you and your needs really well, how can he or she possibly recommend what’s best for you?

2. How will your plan affect my tax return each year? Are there any future taxes I need to be concerned about?

Investors often leave money on the table when it comes to paying taxes. For example, let’s say an investor had accumulated a substantial nest egg. He had a well-diversified portfolio, but he hadn’t considered the effect of taxes on the withdrawals he’d eventually take. To address this, we might restructure some of their investments to make the most of the tax code. Higher-risk investments were placed in an after-tax account, for example, so if those investments experienced losses, he could deduct those losses from his taxes, a benefit not available to him the way his plan had been structured. The plan would now be diversified both for risk and for tax impact. The resulting tax efficiency makes all of his investments work harder, without adding more market risk.

3. How will your plan affect my income and liquidity needs in the future?

When we’re talking to potential clients, we say every decision has a string attached, especially in retirement. We think your plan should include everything from an emergency fund you can access right now to long-term care coverage in the event that you become ill later in retirement. With proper income planning, the money you need now won’t leave you short on funds later, and vice versa.

4. How does your plan match up with my comfort level with risk?

Investors who panic when the market dips or get greedy when it rises tend to make poor decisions. Your plan should be built in a way that you can deal — both emotionally and financially — with whatever the markets are doing. Most advisers can offer sophisticated risk assessments and portfolio stress tests to help you find your comfort level.

5. How will your plan affect the transition of my estate to my heirs?

Many people would enjoy leaving a financial legacy to their family or a favorite charity when they pass away. Unfortunately, without thoughtful and intentional planning, a hefty slice of your life savings could end up in the hands of the IRS. Your adviser should be able to explain how the various accounts and strategies you’re utilizing can protect your estate when Uncle Sam comes looking for his share.

If you’re unsure how your financial plan will help protect and provide for you now and through retirement, take the time to review each and every decision with your adviser by asking him or her these critical questions. Better to learn now if you’ve made a mistake — and fix it — than to make the discovery many years from now, likely after it’s too late.

It doesn’t cost you anything to ask questions, but it could cost you dearly if you don’t.

Kim Franke-Folstad contributed to this article.

Investment Advisory Services offered through Elevated Capital Advisors, LLC, an SEC Registered Investment Advisor.

Elevated Retirement Group is an independent financial services firm helping individuals create retirement strategies using a variety of investment and insurance products to custom suit their needs and objectives. Investing involves risk, including the potential loss of principal.

About the Author

Scott M. Dougan, RFC, Investment Adviser

President & Founder, Elevated Retirement Group

Scott M. Dougan is the president and founder of Elevated Retirement Group . He is a Registered Financial Consultant, an Investment Adviser Representative and a licensed insurance agent.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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