Life is full of changes, and proactive financial planning plays a crucial role in adapting to these changes when it comes to wealth management. Many people set a financial and investment strategy once and never revisit it. This is unwise, as changes such as marriages or divorces, parenthood, career changes, and ultimately retirement can mean significant shifts in financial needs. In this post, we will explore how financial planning helps individuals and families navigate life events.
“I do.” Financial Planning for Marriage
Financial considerations should be part of the conversation before a couple even marries. Both parties may have very different ideas about how to spend, save, and pursue financial goals, and it’s important to reach an agreement before the honeymoon. These conversations should involve which assets will be shared, which will be kept separate, and how spending money will be allocated, or large purchases will be negotiated. There are also conversations that need to happen about future property purchases, having children, and whether retirement planning will happen jointly or separately.
Planning for Children
Children bring joy, but there is no doubt they are expensive. As of 2022, the average cost to raise a child from birth to age 18 is $288,094, or $16,005 per year, and this amount doesn’t even factor in secondary education costs. Many people underestimate how much it will cost them to raise a child, and that it may derail their savings for a home or retirement if they fail to plan in advance.
College savings are another matter, and there are many strategies that can help you begin early to ensure you have sufficient funds when your child reaches college age. These include education IRAs or ESAs, which work similarly to a Roth IRA, as well as flexible 529 plans. The downside to an ESA is that you are limited to $2,000 per year in contributions. 529 plans, which are based on after-tax income, have no contribution limits but amounts over $17,000 may be subject to higher taxes, as they exceed federal tax-free gift limits. The right approach might be a combination of college savings financial products, strategically planned to minimize tax burdens.
Finally, many parents find themselves without a financial strategy in the event that one of their children becomes disabled. In these cases, it’s wise to consult with a professional financial advisor who can help you build a trust that will last for the remainder of your child’s life.
In the Event of a Divorce
While no one likes to imagine a marriage will end in divorce, it’s a significant statistical risk, and it’s a time when it’s crucial to seek professional advice. Divorce laws vary from state to state, so there is no “one size fits all” approach. The most important part of the financial process is the dividing of the assets. While most couples will choose to split their assets 50-50, this is a more complex process than it seems, as some joint assets are considered more favorable from a tax perspective than others (investments versus cash, for example, or real estate).
Changing Employment Status and Retirement
In adulthood, many people choose to make radical changes to their careers and employment. (Alternatively, they may be forced into changes by a poor labor market or ill health.) These changes might involve one parent ceasing work to raise children, or further education to move up the career ladder. Many older adults choose to transition to part-time work with an ultimate view toward retirement. In all these cases, radical changes are needed to ensure that the financial strategy matches future needs.
Arizona-based Prime Wealth Advisors is a full-service investment, tax, retirement planning, estate, and wealth management firm that can craft a robust investment plan for you, your business, and your heirs. Call 623.77.PRIME or visit our website for more information.