Financial Planning: Dangers of Doing It Alone

Debbie Loper |

Preparing for retirement requires a financial plan that considers a variety of factors. According to the Financial Planning Association of Minnesota, "financial planning is a process and not a product." Your financial plan is a long-term approach to managing finances to achieve a dream or goal for the future. At the same time, a financial plan must consider a variety of barriers that could challenge your ability to reach those goals. These barriers are variable and change in every stage of life. Sound like a lot of work?

Well, the reality is that financial planning does indeed take a lot of work. You must be focused on your plan throughout your life, as you progress through stages, change your career, and welcome children into your family. The many dangers that come with completing financial planning alone make it wise to reach out to a financial planner for help instead. Here are some of the dangers you face when planning on your own.


Changing Legislation

With changing control of Congress and the White House, new administrations and controlling parties can alter the amount of money that you can put away for retirement. The recent changes in US tax laws bring their own impacts on how much money you can save and redirect to investments. Moreover, are you aware of the changes in maximum contributions as you approach retirement? Prior to the age of 55, Americans can contribute a maximum of $5,500 annually to an IRA. After 55 though, you can make catch-up contributions to a maximum of $6,500 annually.


Changes in Mutual Fund Options

The mutual fund's options at your brokerage firm can, and will, change over the course of time. Funds may lose their value or positive performance, and if you are not paying attention to these changes on your own, you may start losing money in your investments rather than earning. Further, a fund may close and result in the automatic transfer of your money into the wrong accounts if you are not aware that the fund closes.


Changes in Contribution Maximums

The amount of money you can contribute to various retirement plans differs. Options such as SEP IRAs for the self-employed are based upon a percentage of income compared to 401(k) plans that have a set value. Moreover, there are maximum contribution changes that come into play with Individual Retirement Plans (IRAs). Prior to the age of 55, Americans can contribute a maximum of $5,500 annually to an IRA. After 55 though, you can make catch-up contributions to a maximum of $6,500 annually.


Lack of Foresight

No one can see the future and judge its outcomes, but financial planners can use the experience of other customers and knowledge of the market's fluctuations and how this can impact retirement planning. Most individuals cannot see far enough into the future to know what retirement looks like, meaning even fewer of them can plan for that future.


Emotional Cloudiness and Confusion

When you handle your own financial planning, one of the greatest dangers comes from emotion, confusion, and a simple lack of knowledge. Your emotions can lead you to make decisions that are not in your best interest, while confusion and lack of knowledge surrounding retirement plan options, tax impacts, and other factors can lead to limited gain.


Advice Matters

In the end, the advice of a financial planner can have a positive impact on your future. Unlike yourself, a Certified Financial Planner at Hughes Warren has knowledge and experience that enables them to offer insight on investments, estate planning, tax liabilities, and even college savings for your children.