Wealth Management

Middle Class Investing: How Much Money Do You Need for Wealth Management, Really?

Everyone, at some point in their lives, needs some form of wealth management. However, knowing when it’s the right time for you to ask if you are ready for professional help with your finances isn’t always clear. You probably already have savings and a retirement account. And, if your earnings are increasing over time and you also have capital invested in either stocks, mutual funds or ETFs, then you are ready to benefit from a professional financial advisor. Investable income brings the opportunity to generate new wealth, buy property, and start a family.

Now is the time to start asking yourself some important questions, such as:

  • Do you plan on getting married?
  • Do you have or want children?
  • Do you plan on buying a house or second home?
  • Do you need a new car?
  • What is your debt to income ratio?
  • Do you see your career changing anytime soon?

Ultimately, the question, “How much money do you need for wealth management?” has more to do with where you want to be than the present value of your 401(k) and investments. If you consider yourself a middle-income earner, then the time for wealth management is now. You don’t need to have a 7-figure net worth or pay excessive consulting fees to hire a professional advisor. Frankly, the sooner you get started, the better. But you can do your homework before you meet with an advisor, and assess what kind of wealth management might benefit you best. Let’s take a look at a few key types of assets you should consider when you’re thinking about your wealth management options: Restricted Stock Units, insurance options, and your 401(k).

Don’t lose sight of your Restricted Stock Units (RSUs).

Restricted stock units are an excellent way for your employer to show their appreciation for your years of hard work. However, be sure to prepare for capital gains taxes when they finally vest.  Vesting triggers an automatic, involuntary process as required by the IRS. RSUs are unique from stock options or an employee share purchase plan (ESPP) because you can choose whether to receive a cash payout or common stock. RSUs become an asset that generates income for which you will owe taxes on top of your regular employer withholdings. If your compensation package includes stock options and RSUs, then a wealth manager can help you decide how to maximize your profit potential from both.

Imagine that your company stock is soaring, and you want to also buy stock through your employee share purchase plan (ESPP). ESPPs incentivize employees to invest in discounted company stock. However, these plans come with some restrictions for most companies. A compliance officer requires you to have prior approval to purchase or sell stock shares. ESPPs  are closely monitored by the SEC to prevent insider trading or “tip-offs.” Your wealth manager can help you to navigate how to structure a diversified portfolio of equity investments.

It can be easy to forget about RSUs, but planning for the expense ahead of time and using your rewards as part of an investment strategy can prevent you from scrambling to pay an unexpected bill later on.

Be aware of all your assets, like insurance.

Do you ever consider what insurance do you need besides auto, health, and mortgage? Have you thought about buying life insurance as a means to increase your family’s buying power?

There are a number of important types of life insurance to consider:

Whole Life Insurance

Whole life policies are assets which gain value over time, and you can borrow against them to get a lower interest rate on major purchases, such as mortgages and estate planning. You can also liquidate and cash out a portion of your policy’s face value both before and after retirement after you’ve held the policy for an extended period.

Term Life Insurance

This type of life insurance provides coverage at a fixed rate of payments for the relevant term—usually a limited period of time. If the insured dies during this time, the death benefit is paid to the beneficiary. Once this term expires, the client can forgo coverage or renegotiate further coverage. Term insurance tends to be one of the most economical options for purchasing coverage over a specific period of time.

Universal Life and/or Variable Universal Life Insurance

Universal life insurance is a cash value life insurance in which any excess of premium payments above the current cost of insurance is credited to the cash value of the policy, with interest. With variable universal life insurance, that cash value can be directed to separate accounts that can operate similar to mutual funds. While this comes with greater risk, it also comes with more potential growth.

Umbrella Insurance

Umbrella insurance is essential if you own your own business that offers services that pose a higher risk for physical injury. Even if you don’t, you may want to have the peace of mind knowing that if you or your kids accidentally hurt someone or damage their property, you have coverage for the losses.

Indemnity Insurance

Every business owner should consider an indemnity insurance policy for as long as they own a business. Indemnity coverage protects companies from legal claims made against them for failure to deliver on contractual agreements. As a business owner, you don’t ever take on a new customer or sign a contract that you don’t believe you can deliver on. Even after years of thought and preparation, unexpected failures can and will sometimes occur that are unforeseen, are the fault of a third party, or result from a sub-contractor failure.

Let’s adequately plan for these scenarios now and lower the risk to your family’s or business’ finances long term.

Don’t forget to manage your 401(k)s.

I have heard stories about people who change jobs but continue to keep their old company’s 401(k) plan. They end up with a new retirement savings account at every company they’ve ever worked. What isn’t ideal about this scenario is that tracking the performance of fund managers becomes more complex. Managers charge a fee on the percentage of the value of your investment portfolio, usually on a quarterly basis.

Of course, you receive quarterly earnings statements in the mail or online. When you review them, do you know what benchmarks to compare each fund’s performance to? If your combined assets are approaching $500,000, then start your search for a professional. As an investor, it can be hard to know if your mix of retirement portfolios is putting you on track to create the wealth you will need to retire.

Consider a financial advisor.

Even if you know you could use some help managing your wealth, with so many ads everywhere about financial advisors making promises, it’s easy to become desensitized to the need for them at all. Real wealth management requires having many different professional services working together for you to be an efficient, effective and cost-controlled effort. A comprehensive wealth management team will include:

  • Insurance broker
  • Tax services
  • Auditing (if you own a business)
  • Accounting services (if you own a business)
  • Advisory services

How do you know how much money do you need for wealth management? You may think that because you’re just getting started in your career or business or your retirement savings haven’t reached a six-figure number yet that it’s still too early. But choosing wealth management now is still a great idea and can set you up on the right path for big life decisions later down the line. Choosing a registered investment advisor (RIA) that is part of a full-service wealth management firm is one of the best options.

A team of experts at a company like SD Mayer can address your entire financial portfolio. How much capital do you have presently, and how much money will you or your family need in the future? As full-service wealth managers we can maintain, consult, and categorize all of your holdings and set you on a path to financial wellness for your entire lifetime. Contact us today to learn more.

Image Credit | ITTIGallery | Shutterstock

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