Why Financial Planning is More than “Saving For Retirement”

Fork in the road




Saving more for retirement is good advice, but financial planning for early to mid career professionals goes way beyond that. When most people hear “financial planner” or “financial advisor” retirement planning immediately comes to mind and for good reason. The industry has largely focused on pre-retirees and retirees because of the “Assets Under Management” or AUM fee model. Under this pricing model advisors charge a percentage of the assets they manage for you. 


Individuals in their 20’s,30’s or 40’s simply haven’t had the time to build up the asset base necessary to work with an advisor, but your situation is just as complicated, if not more so! From first time home purchases to marriage, children, career changes, starting a business, going back to school, or relocating, there is no shortage of massively impactful financial decisions to be made. Personally, I have navigated going back to school, changing careers (and back) and starting a business all within a four year period. My personal financial situation has occasionally caused me stress and kept me up some nights, but has also allowed me the opportunity to take a chance on myself and pursue my dream of starting and running a business that is a reflection of my principles and beliefs. 


Navigating through these changes calls for some “unconventional” planning and advice to provide the flexibility needed to take advantage of opportunities and reach your goals. 


1. Maxing out your 401(k) or other retirement accounts may not be the best option!


Saving for retirement is never a bad idea. If you have the cash flow and a generous match through your employers 401(k) you should take advantage of it. However, an understanding of your goals and the trade offs between different savings methods is vital. Early to mid-career professionals are in the “accumulation phase” of their lives and the reality is that increasing your human capital through education or acquiring additional skills can have an impact well beyond those offered by financial assets.


If you plan on starting a business within the next few years a 401(k) may not the best vehicle for your hard earned cash. There are tax benefits to 401(k)’s and other retirement accounts, but most of them tie up your cash until age 59 ½ (unless you want to eat the 10% penalty) which limits the flexibility you have in funding your business, skill advancement and lifestyle as you grind to get things up and running. Having access to the cash is more important than the tax advantages in this instance and a savings or individual brokerage account may better serve you. I started my own business recently and haven’t contributed to pre-tax retirement accounts for a few years knowing that was the direction I wanted to go. I used a mix of savings accounts and brokerage accounts to bucket my cash and investments and match them with my anticipated expenses. Having cash tied up in a 401(k) would have restricted my ability to launch and grow my business.


What about if you want to take a sabbatical? Work remotely in a foreign country or different state? Take that trip through Europe you’ve been wanting for the past 10 years? Anticipated child care expenses because both spouses plan to continue working? Everyone’s goals and ideal lifestyle are different and require a different approach. Investing outside your retirement accounts to take advantage of these opportunities or experiences is more than ok, provided you understand the impact it will have on your future and feel comfortable with the direction of your plan. Saving for retirement is smart, but following general rules of thumb and advice and applying it to your specific situation, goals, aspirations and values may not produce the outcome you were hoping for. 

2. Buying isn’t always better than renting 

Home ownership has been touted as the best opportunity to grow your wealth and is the pinnacle of the American dream. Renting on the other hand, is frequently referred to as a waste of money. Neither is a bad option as long as you understand the expenses and opportunity costs that accompany each option. Purchasing a home includes costs beyond the down payment and monthly mortgage payments such as:

  • Home repairs and maintenance 
  • Insurance 
  • Property taxes 
  • Flexibility to move and take advantage of other opportunities 

I’m not knocking home buyers, but again, depending on your situation renting may provide you with additional flexibility based on your unique set of goals. Depleting your savings to fund a down payment and restarting your savings plan with additional expenses should be scrutinized carefully.

I live in Boston and love city life. Purchasing a home or condo in the city is a laughable proposition for me given the real estate market here. I’m fine with renting because I like the flexibility and have no interest in worrying about fixing a roof at this moment in time. Again, my cash was used to start my business with the understanding that I can buy a home when the time is right for me. The money that would typically go towards a down payment, home insurance and property taxes can be invested in my business, savings or brokerage accounts for the time being. Maybe you want to take a once in a lifetime trip abroad, obtain a graduate degree or head to the Super Bowl to watch your favorite team play (which is a once in a lifetime opportunity… unless you’re a Pats fan 🙂 ). Pushing home ownership back a few years may make sense for you!


3. Large companies provide employment security 

The burden of financial planning and retirement has been transitioning to the employee for a few decades and continues to accelerate in that direction. We are responsible for selecting our savings rates, investments and vehicles. Gone are the days where you could work for a company for 35 years, snag a pension and ride off into the sunset. 

Honestly, I’m excited about this. For starters, I’ve seen a number of family members, friends and colleagues get let go by companies. It has left them in terrible financial situations and put them in dire straits for retirement. There’s been a surge in resignations across the US with people deciding to start their own business, freelance or take on consulting work. I believe this will be the future of work and it’s exciting because it provides so much opportunity to those who are creative, entrepreneurial and financially savvy. Watching your bank account dwindle as you venture into the unknown is unpleasant (trust me), but if you can push through what’s waiting on the other side? Job security and earnings potential that few established employers can offer. 

It’s risky yes, but is it any more risky than getting to age 55 and being let go? Ageism is real unfortunately and finding job opportunities as you age continues to get more and more difficult. Taking the plunge into entrepreneurship, a non-traditional career or joining a startup may provide you more fulfillment. It can be a responsible move when the risks are accounted for and your finances are in place. There are financial planning basics that everyone should follow before getting creative with your specific plan. Once you have your foundation in place it’s ok to get personal with finance and take a unique path to your goals and ideal lifestyle. 


Disclaimer: The information on this site is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision. This content is provided “AS IS” and without warranties of any kind either express or implied. To the fullest extent permissible pursuant to applicable laws, Hereford Financial disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose.

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