By Jonathan Harner, CFP®
As the owner and a financial advisor at Wichita Wealth Management, I’ve had the pleasure of meeting with hundreds of employees in the aerospace industry. This industry is especially important as it is the backbone of the Wichita economy. So, while they often enjoy competitive salaries and benefits, I’m pained by the financial mistakes that prevent aerospace employees from attaining their retirement goals.
Please join me as we explore the five most frequent financial mistakes aerospace industry employees make.
1. Not Understanding Their Tax Brackets
Working employees in the aerospace industry typically have three tax brackets they need to be aware of: federal income, state income, and capital gains.
Failing to understand how these three tax brackets work can prevent you from making smart tax strategy decisions about income, retirement, and wealth management. For example, you could contribute to a pre-tax/after-tax retirement account when you should have contributed to a different type of retirement account. This kind of financial mistake could potentially cost you significant capital.
2. Too Much or Too Little Risk in Their Portfolio
Another common financial mistake I see aerospace industry employees make is taking on too much risk by holding on to company stock for too long.
On the flip side, I’ve seen clients approaching retirement and becoming ultra-conservative. If you retire at age 65, you could need your money to last 30-plus years. If you become too conservative too soon, you risk running out of money in retirement.
Here’s an analogy to put this financial mistake into perspective. Not having the right balance of risk and stability in your portfolio is like building a bridge with steel beams and wood. If you build the bridge exclusively with steel beams (low-risk portfolio), while safe, it limits potential for growth and expansion. If you build the bridge exclusively with wood (high-risk portfolio), it’s cheaper and quicker to build, but it exposes you to potential negative consequences.
Building a bridge with the right balance of steel and wood is just like having a well-diversified portfolio that provides the potential for growth while simultaneously managing downside risk.
3. Not Having a Comprehensive Estate Plan
Estate planning is a crucial aspect of holistic wealth management, especially if you want to pass assets to the next generation. Remember, estate planning isn’t about you, it’s about your heirs.
If you’re okay with the government making estate-planning decisions about your hard-earned money, a default estate plan might be the right option for you. But if you want to feel confident that what you’ve built over your lifetime is passed on according to your wishes, while minimizing taxes, and probate expenses, then customized trusts and other comprehensive estate documents are your wise choice.
4. Too Much or Too Little Cash
The old saying that “cash is king” is accurate…until it’s not.
Too much or too little liquid cash could jeopardize your ability to retire comfortably, just in different ways. If you have too little cash, you might have to pull money out of your retirement accounts and pay the tax penalties. Too much cash and you’re leaving market returns on the table that could be compounding.
Just like a portfolio with the right mix of risk and stability, maintaining a balance between having too much or too little cash is essential for financial health.
5. Having the Wrong Amount of Insurance
Insurance can seem like an unnecessary expense when times are good, but it’s critical during crises. Confirming you have the proper amount of insurance is vital.
Life insurance is a perfect example. Let’s say your salary is $100,000 and your life insurance is 2.5 times that amount at $250,000. If you’re currently using your entire salary on living expenses, your surviving spouse will most likely also need that same amount for living expenses. That means they’ll have to return to work in approximately 2.5 years after your untimely death.
Avoid Financial Mistakes: Reach Out for Help
Missed opportunities can have devastating effects on your wealth and your legacy. My mission at Wichita Wealth Management is to utilize my knowledge and experience to help clients optimize their finances so they can realize their retirement goals.
To prevent financial mistakes from hindering your dreams, you can contact me at 316-722-1010 or jonathan@wichitawealth.com.
About Jonathan
Jonathan Harner is a CERTIFIED FINANCIAL PLANNER™ practitioner at Wichita Wealth Management, a fee-only, fiduciary financial advisory firm dedicated to helping their clients thoroughly prepare for retirement. Jonathan’s goal is to simplify the complex so his clients can experience confidence and peace of mind as they work toward and live out their retirement dreams. He specializes in developing and implementing tax strategies that maximize his clients’ money and builds a tax-efficient withdrawal plan for retirement. Jonathan loves finding opportunities for his clients to save money and is dedicated to continual learning and growing in his profession so he can provide solutions for his clients’ financial needs. When he’s not working, you can find Jonathan spending time with his wife, Annie, and their daughter, staying active in his church community, and participating in his two favorite (but vastly different) hobbies: CrossFit and Dungeons & Dragons. To learn more about Jonathan and how he can help you, connect with him on LinkedIn.