Professional financial advisors are highly educated and well-trained to provide you with guidance on making significant financial decisions. Yet, despite hiring a financial advisor to do exactly this, many people still end up ignoring the advice given by their advisors. This often happens when people do not realize the significance of the financial decision they are making. Other times people are simply making emotional decisions and cannot be swayed to make a logical financial choice for one reason or another.
Mistakes with retirement accounts
One common mistake that people tend to make is not consulting with a financial advisor before cashing out on their retirement account. There are various rules which affect your total return and tax liabilities when it comes to the different types of retirement accounts out there. Unfortunately, once the damage is done there is not much that a financial advisor can do.
The type of retirement accounts you have will determine how your money is taxed. Some have you paying taxes up front as you are making your contribution to the fund. Others will have you paying taxes after you take money out of the fund. Not understanding how your retirement accounts will be taxed can leave you in a tricky situation when you are faced with a large tax bill that you were not prepared to pay.
Estate planning mistakes
Not listening to the advice of your financial advisor to have your estate planning documents in place can result in your intended heirs not receiving the generational wealth that you wanted them to have after your passing. Your estate may end up in probate court where it will be up to the judge to decide how to administer your estate. This can result in huge legal costs for your preferred beneficiaries.
Mistakes with Social Security
Another common issue is not consulting with a professional financial advisor when it comes to Social Security benefits. There are many rules which govern when you can receive benefits and how they are taxed. Pulling your benefits out too early can also diminish the maximum potential income you will have once you have retired.
Also, Social Security has rules as to how your benefits are accumulated which is based upon how much you have worked. In some cases, it may make sense for a person to continue working for several years past the age he or she is allowed to start receiving Social Security benefits. This is particularly true when you have gaps in your tax record where you were not earning income.
A professional financial advisor will be knowledgeable about the rules surrounding Social Security benefits and will be able to help you make decisions to maximize your benefits while also keeping your personal circumstances and goals in mind.
Find a professional financial advisor
In order to avoid all of the issues mentioned above, along with many other problems, you may want to start looking for a good financial advisor. Although you may not be looking to make a big financial decision right away, sooner or later you will be. Also, it is never too early to start developing an estate plan to ensure you can pass on generational wealth to your intended heirs.
Any opinions are those of the author and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. You should discuss any tax or legal matters with the appropriate professional.