Personal finances can be complicated, especially when you’re a federal employee with a robust benefits package that includes a FERS pension, survivor benefits, the Thrift Savings Plan, and life insurance, all of which require some type of financial decision making. And while OPM and your HR specialists do an excellent job of providing plenty of information, the responsibility of integrating your federal benefits into a customized financial plan is yours alone.
And while some federal employees relish in the process of budgeting, creating a customized investment portfolio, and reviewing tax law changes, the thought of creating a tailored financial plan can be overwhelming for many. And it is this select group of federal employees that it often makes sense to consider hiring a financial advisor.
The term financial advisor is a catch-all that usually includes financial planners and investment advisors. However, in this article, the term refers to a Certified Financial Planner (CFP) practitioner who provides comprehensive financial planning services (preferably a fee-only advisor, meaning they do not accept commissions).
Thus, if you’re one of those federal employees who feel overwhelmed or confused by your finances, then here are three reasons it is often a good idea to hire a financial planner.
1. Help With A Comprehensive Plan
Although many federal employees believe that financial planners purely manage investments, the most significant benefit financial planners can offer to their clients is helping them develop a holistic, personal financial plan.
While developing an investment plan that includes constructing an optimal investment portfolio is often one of their responsibilities, it should be seen as a piece of the overall plan. When working with an advisor, you will typically receive an initial plan that aims to synthesize all the major areas of your financial life, such as your assets, liabilities, cash flow, insurances, estate, taxes, and federal employee benefits, to help you reach your short and long-term goals.
So, if having a step-by-step guide on how to achieve your goals appeals to you, then you’d likely benefit from working with a financial planner.
2. Help You Avoid Mistakes
Financial planning can be complicated; not only does it require an understanding of finance, economics, and taxation, but it also demands that you stay up to date with legislative changes. Don’t get me wrong, financial planning is not rocket science. Still, just as most of us would hire a contractor to remodel our home or an electrician to repair our a/c unit, most of us should hire a professional to help us with our financial planning. We typically hire professionals to avoid costly mistakes, and hiring a financial advisor is no different.
For example, some federal employees may decide not to elect the FERS survivor benefit because they want to maximize their FERS pension and thus avoid the costs of electing the benefit. However, they may not realize that in order for their spouse to maintain FEHB coverage if they were to die, the spouse must be entitled to a survivor benefit. Avoiding this mistake alone could save a federal employee’s spouse tens of thousands of dollars in healthcare costs.
Another common mistake that can easily be avoided with the help of an advisor is aligning investments with the goal’s time horizon. For instance, a federal employee may have their entire TSP invested in the C fund, which worked wonderfully throughout their working years but then they fail to trim the risk of their portfolio back as retirement approaches. This could be a devastating mistake if a significant downturn in the market were to occur within a couple of years of retirement.
Again, this is another error that, if avoided, could save a federal retiree tens if not hundreds of thousands of dollars. And these are just a few of the many missteps I have seen federal employees avoid by working with a qualified financial planner.
3. Save You Time
If you don’t work with a financial advisor, will you build a financial plan for yourself? As we previously covered, creating a comprehensive financial plan requires understanding multiple disciplines. So, if your strategy will consist of a combination of winging it and Google, do you want or have the time to spend hours researching financial questions and evaluating your options? Truth be told, depending on your financial acumen, you might spend hours just looking up definitions and trying to decipher your financial documents.
Moreover, proper financial planning is not a one-time event. Once you create your initial financial plan, you should review your progress periodically to ensure your plan’s accuracy
and ongoing appropriateness.
Even if you can find the time to create a proper financial plan, is that the best use of your time? Time is the most precious commodity we have, so, will it make sense for you to invest the amount of time and energy required to develop, implement, and monitor your financial plan? The answer could certainly be yes, but for many, the answer will be an unequivocal no.
Although many of the benefits of working with a financial advisor are non-tangible, such as helping you create a cohesive plan that reduces your stress and helps you avoid errors. There are certainly quantifiable benefits, such as helping you reduce taxes, increasing the long-term performance of your investments, and saving you time.
And while many federal employees get by just fine without the help of an advisor, if you are feeling overwhelmed or confused by your finances or looming financial decisions, you should consider working with a financial planner.
If you do decide to work with a financial planner, finding one doesn’t have to be a daunting task. You can find potential advisors using the directory of the National Association of Personal Financial Advisors or the XY Planning Network, both of which are membership groups of fee-only advisors.
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