Financial Planning FAQs

Question 1

What is a fiduciary financial advisor?

Accepted Answer

A fiduciary financial advisor is legally obligated to act in your best interest — not just recommend 'suitable' products. Fee-only fiduciaries are compensated only by you (not by commissions), which eliminates conflicts of interest. When choosing a financial advisor, asking 'Are you a fiduciary?' is one of the most important questions you can ask.

Question 2

How much should I have saved for retirement?

Accepted Answer

A common guideline is to save 10–15% of your income throughout your career, with a goal of accumulating 10–12 times your annual salary by retirement. However, the right number depends on your expected lifestyle, retirement age, Social Security benefits, and other income sources. A local financial planner can build a personalized projection for your specific situation.

Question 3

What is the difference between a traditional and Roth IRA?

Accepted Answer

Traditional IRA contributions may be tax-deductible, and withdrawals in retirement are taxed as ordinary income. Roth IRA contributions are made with after-tax dollars, but qualified withdrawals in retirement are completely tax-free. The right choice depends on your current vs. expected future tax rate. Many advisors recommend a mix of both for tax diversification.

Question 4

When should I start claiming Social Security?

Accepted Answer

You can claim Social Security as early as 62 (with a reduced benefit) or as late as 70 (with an 8% annual increase for each year you delay past full retirement age). Delaying from 62 to 70 can increase your monthly benefit by 76%. For couples, coordinating claiming strategies can add hundreds of thousands of dollars in lifetime benefits. This decision deserves professional analysis.

Question 5

How should I balance saving for college vs. retirement?

Accepted Answer

Financial advisors generally recommend prioritizing retirement savings over college funding. You can borrow for college; you cannot borrow for retirement. Once retirement savings are on track, a 529 plan is an excellent college savings vehicle — contributions grow tax-free and withdrawals for qualified education expenses are tax-free. Illinois residents get a state tax deduction for 529 contributions.

Question 6

What is asset allocation and why does it matter?

Accepted Answer

Asset allocation is the distribution of your investments among different asset classes — stocks, bonds, real estate, cash. It's the primary driver of long-term investment returns and risk. Your allocation should reflect your time horizon, risk tolerance, and financial goals. A financial advisor can help you build and maintain an allocation that's appropriate for your situation.

Question 7

How much does a financial advisor cost?

Accepted Answer

Fee structures vary: fee-only advisors charge hourly ($200–$400/hr), flat fees ($2,000–$7,500 for a comprehensive plan), or a percentage of assets under management (typically 0.5–1.5% annually). Commission-based advisors are compensated by product sales. Understanding how your advisor is paid is essential to understanding potential conflicts of interest.

Question 8

What is an estate plan and do I need one?

Accepted Answer

An estate plan is a set of legal documents that specify how your assets will be distributed after your death and who will make decisions if you become incapacitated. At minimum, most adults need a will, healthcare directive, and power of attorney. Parents with minor children need a will to name a guardian. A financial advisor can coordinate with an estate attorney to ensure your financial plan and estate documents work together.

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Financial Planning Frequently Asked Questions

Financial Planning FAQs

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