The financial industry has many different types of advisors and sometimes it can be hard to tell them apart. One common question is what is the difference between someone who specializes in wealth management versus retirement planning?
While there is a fair amount of overlap between these two types of advisors, there are also some key differences. By understanding how they can compare, you can pick the right person to handle your plan.
Retirement Planning
Like the name says, retirement planning is focused on your retirement. This includes establishing your retirement goals, figuring out how much you need to save to reach your goals, investing your money so it grows before retirement, and coming up with strategies so you do not run out of money during retirement.
This type of investment advice is more focused on investing through retirement plans like 401ks and IRAs. Non-retirement investments are less of a priority. Retirement planning is also not focused on growing your income today through investing. The priority is managing your savings for the future so you can reach your retirement goals.
Wealth Management
Wealth management is a bit broader. While this specialty covers retirement planning, it can also look at other investments outside your retirement plan. Wealth management also spends more time covering tax strategies for your investments. With retirement plans, tax planning is easier because these accounts delay taxes on your investments until retirement.
When you invest outside a retirement plan, you owe taxes every year, so you need a plan to avoid paying too much. Wealth management can also focus on growing a
person's current income through investing, like someone who is earning $50,000 per year with their investments and wants to bump that up to $100,000.
Wealth management spends time on estate planning as well. This process requires figuring out how to effectively leave assets behind to your heirs without owing too much in taxes. This type of planning has a more multi-generational focus than retirement planning does.
When Retirement Planning Is Best
Retirement planning makes sense for middle-class and upper-middle-class investors--people who are investing for retirement. Since these investors will reach this goal mainly using their retirement plans, they don't need the extra tax planning or investment advice from a wealth manager. Also, these investors typically do not need extensive estate planning because their wealth is below the estate tax threshold.
As of 2017, you can leave up to $5.49 million to your heirs without owing estate taxes.
When Wealth Management Is Best
Put simply, wealth management makes more sense for wealthy investors. These are people who are investing well above the maximum annual limits of their retirement plan so they need the additional investment advice. Also, since these investors have more money, they are more likely to owe estate taxes after they die. They are better candidates for the more extensive planning from a wealth management advisor.
Make sure the person you trust with your financial plan is the right professional for the job. By considering this information, you can decide whether you're in the market for retirement planning or wealth management.
Contact Nicholas Wealth Management to see how we can help you with your financial goals.
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