Tag: Tax Planning

Categories
Financial Planning

What is Financial Planning & How is it Different From Investment Management?

What is Difference Between Financial Planning & Investment Management
Difference Between Financial Planning and Investment Management

By Jon Powell, CFP®

Do you need financial planning or investment management? To answer that question, you need to have a grasp on your financial goals, and also understand that advisors have different specialities. 

In this article, we’ll define the differences between financial planning and investment management, as well as detail our process for helping you determine which approach is best.

Financial Planning vs. Investment Management

According to the CFP Board, financial planning is a collaborative process that helps maximize a client’s potential for meeting life goals through financial advice that integrates relevant elements of the client’s personal and financial circumstances.

Essentially, it’s a holistic process that looks at all parts of a client’s financial situation to create a customized plan to achieve their financial goals. It includes the following subject areas:

  1. Retirement planning
  2. Education planning
  3. Tax planning
  4. Investment planning
  5. Estate planning
  6. Risk management and insurance planning

Investment management, on the other hand, aims to meet particular investment goals for the benefit of clients whose money a financial professional has the responsibility of overseeing.

It is a siloed service that does not necessarily incorporate the other aspects of a client’s unique financial situation. Financial planning usually includes investment management, but investment management does not automatically include financial planning.  

Our Financial Planning Process

At Ferguson Johnson Wealth Management, our team focuses on investment management and financial planning; we will be in your corner for the issues that inevitably come up.

We strive to work with clients whose goals and dreams are a fit with our expertise and background. To determine a fit and bring clients onboard we typically follow an established process:

  1. We’ll schedule a brief initial meeting, so you can meet our team and we can learn about you, your goals, and your hopes. After the initial meeting, you’re welcome to reach out again with follow-up questions. If you prefer, we’re comfortable meeting over the phone or virtually.
  2. If we agree to work together, we’ll ask you to complete enrollment documents, and discuss your financial situation and needs in greater depth to start building your financial plan. This process usually takes several weeks.
  3. Next, we’ll schedule a meeting to walk you through the initial draft of the financial plan we’ve developed. We’ll make any needed adjustments based on your feedback, and then put the plan into place.
  4. Once your plan is up and running, our work isn’t done. We’ll check in regularly with you to ensure your plan is on track and reflects your current circumstances. And remember that as a fiduciary, we’re always available to provide an update or to address any questions or concerns.

We pride ourselves on being a stabilizing influence when our clients face times of uncertainty, whether that be market volatility, family issues, or when they just need a sounding board.

Are You Looking for Comprehensive Financial Planning?

If you are looking for comprehensive financial planning that includes strategic investment management, we would love to hear from you.

At Ferguson Johnson Wealth Management, we work with pre-retirees, retirees, and government workers to create a financial plan or investment strategy tailored to your needs. To get started, reach out to us at 301-670-0994 or by email. 

Categories
Retirement Solutions

401(k)s and Pension Plans: What’s the Difference?

A Man With Glass Of Mug In His Hands Looking At The Drafts

By Jon Powell, CFP®

With many kinds of retirement plans out there, it can be hard to tell the differences among them at first glance. Two of the most popular types of retirement plans offered by employers are the 401(k) plan and the pension plan.

An employer typically provides one or the other, but not both. While it’s unlikely that you’ll have a choice between the two, you’ll probably come across one of these plans throughout your working years, so it’s essential to understand how they work and what they mean for your retirement. 

What Is a 401(k)?

A 401(k), or defined-contribution plan, is a common retirement plan offered by employers. With a 401(k), you elect to contribute part of your salary into a retirement account. You can choose from a range of investments such as index funds, mutual funds, and target-date funds.

You also have the ability to change your investments, however, they are limited to the investments your employer offers. You can contribute up to $20,500 (as of 2022) each year, and if you are 50 years of age or older, an additional $6,500 catch-up contribution.(1)

Your employer may also choose to match your contributions up to a certain amount. The total limit for employee and employer contributions is $61,000.

There are two types of 401(k) plans: a traditional 401(k) and a Roth 401(k). In a traditional 401(k), your contribution is taken from your salary pre-tax. Your traditional 401(k) grows tax-deferred, and you only pay taxes when you withdraw from the account in retirement.

Because these contributions are tax-deferred, contributing to a traditional 401(k) means you lower your taxable income at the time you contribute. 

A Roth 401(k) is funded with money after you’ve already paid taxes on it. The money in your Roth 401(k) grows tax-free in your account, and since you’ve already paid taxes on your contributions, when you withdraw funds, you withdraw them tax-free.

Thus, the key difference between the two boils down to when you pay taxes. If your employer offers both, you need to decide whether it makes sense for you to pay taxes now or when you retire.

401(k) plans are also generally subject to required minimum distributions, meaning you will need to begin withdrawing from your plan when you reach age 72.(2)

What Is a Pension Plan?

A pension plan, or a defined-benefit plan, is an employer-sponsored plan that guarantees an amount of income in retirement. The amount you receive in retirement is determined by a few factors, such as your length of employment, your salary, your age at retirement, and any other specifications set by the employer. 

Your employer is responsible for contributing to the plan and all the investment risk is on them as well. However, you may need to work several years at the organization before you are eligible for a pension plan. Additionally, with a pension plan you have no control over how it’s invested.

Depending on the plan, you may be allowed to contribute part of your salary as well. You are also guaranteed regular payments for the rest of your life, though the plan might offer you the choice of a lump-sum payment.

Which Plan Is Better: 401(k) or Pension Plan?

Both plans have their advantages and disadvantages. Pension plans have been around longer, however, 401(k) plans are much more common today. In fact, as of March 2021, 52% of employees had access to a defined-contribution plan such as a 401(k), while only 3% had access to only a pension plan (12% had access to both).(3)

If you have a 401(k), it is up to you to save for your retirement. You have more control but more responsibility as well. With a pension plan, your employer is responsible for funding the plan.

If you like knowing you will have a guaranteed income in retirement and prefer not having to contribute any of your own money, a pension plan will be more attractive to you. If you’d rather have more control over how much you put toward retirement, a 401(k) may be a better fit for you. 

Setting Yourself Up for Success

Planning for retirement can feel daunting—but you don’t have to figure it out all by yourself. Choosing the right partner as you plan for the future can help you set yourself up for success in retirement. And finding a financial advisor that understands your unique situation and goals doesn’t have to be difficult.

At Ferguson Johnson Wealth Management, our mission is to simplify navigating the complexities of retirement, helping you plan wisely so you can live fully.

We understand that retirement plans are not one size fits all. That’s why we work with you to develop a plan tailored to your needs. Reach out to us at 301-670-0994 or by email. 

Categories
Savings

Best Practices Savings Guide

Coffee cup and notebook with to do list, savings guide and tax planning concept
savings guide for 2024 covering HSA,IRA, 401(k), emergency funds

In most lines of work, you read about “best practices”. Well, let’s take a moment to apply best practices to your finances. You may be just beginning your financial journey, fresh out of college. You may have children or grandchildren that are starting their first real job.

Perhaps, you just want to get serious about your finances. This savings guide is designed to help organize cash flows, so that money is being used in the most efficient manner possible.

Continue reading “Best Practices Savings Guide”