Since setting an appointment with a financial advisor might seem intimidating at first, we talked to LeGrand Hutchinson, principal at Warrior Investment Group in Tuscaloosa. Hutchinson has been an advisor for over 35 years. We wanted to know what he's asked most when people come to him for planning advice.
How does someone get started for retirement planning?
To get started with a retirement plan, you have to do one of two things: figure out how much money you want to have to generate income (lump sum), or you need to determine how much income you want to generate.
What is the difference in those two approaches?
Part of the difference depends on the retirement or social security benefits available from an employer, and some depends the amount of money someone will be able to save on the side. Then, you have it figure out – and this hard – how long you are going to live, and what would an appropriate rate of withdrawal. Commonly this (the withdrawal rate) is 3 to 5 percent. 6 percent is stretching it. We counsel our clients to use 3 percent. You can look at one’s health or other family issues to determine the appropriate level of withdrawal personally.
When should you start financial planning?
I would encourage them to start thinking about retirement planning from their first job out of college.
Fund an IRA or 401k every year.
They can come to us for advice and counsel at any time, whether they're 25 or 42 years old. Once you are out of college, it is never too early to begin retirement. We can start with a relatively simple, and very thorough, financial plan.
What do you do if you don’t have anything saved yet?
The single biggest financial asset you have is your earning power – whether it is $50,000 or $150,000 per year. You need to learn how to save and invest every year – and not less than 5 percent. If you start with nothing, you have to start with an appropriate amount for your investment plan.
What is the most common mistake you see people make when doing their own financial plans?
Investors, or potential investors, ought not make calculations for outrageous returns. If they get 8 or 9 percent year over year, over a long period of time, they have done quite well. Most people should not plan to reach their goals at 15 percent a year. There are outliers. But it is not common.
Hutchinson also cautioned that this isn't meant to be a comprehensive list of all issues and considerations for financial planning. If you need to find an investment advisor, The Association of Financial Planners offers a search function at plannersearch.org.
And, as Hutchinson points out, now is the time to get started – regardless of your age.