Virtuoso

Each month, Rittenhouse Sq. Revue highlights advice and perspectives from local experts and representatives of prominent Rittenhouse establishments. This month, Rittenhouse Sq. Revue sat down with Christy Barilotti, CFP® (Certified Financial Planner™) and managing member of Barilotti Wealth Strategies LLC, a wealth management firm located in the heart of Rittenhouse.

Christy provides local clients with professional guidance through independent, objective financial advice, specializing in retirement planning for women and personal planning for small business owners. Christy shared some of her tips on financial planning and wealth management with the Rittenhouse Sq. Revue.

How is a Certified Financial Planner™ different from a financial adviser?

Unlike a financial adviser who typically focuses on one area of a client’s financials, a CFP® takes a holistic approach to advising and works with a client’s other advisers, such as attorneys or accountants. We look at everything from the individual’s stock portfolio and tax and insurance strategy to their retirement and estate planning, and provide recommendations based upon the client’s overall financial circumstances.

How do you advise your clients in turbulent times?

Cash is king. In these uncertain times, cash creates the stability we all need. Even in a difficult economic environment, opportunities to invest in real estate and the stock market will arise; however, clients need to make sure they have enough cash on hand to sustain their current ventures. Whether it’s a personal or business endeavor, I always advise clients to make sure they have enough cash saved - you can never have too much on hand for emergencies or opportunities.

How do you help clients determine whether or not they have enough cash to pursue a new venture?

I ask them about their goals, the timeframe in which they hope to achieve them and their risk tolerance. A younger person who doesn’t plan to retire for many years can suffer a large loss and eventually recoup, but a business owner who is approaching retirement age will have fewer years to recover. If a client has a guaranteed income and is employed in a stable industry, he or she may be able to take on more risk with his or her investments. A client who is in a volatile industry or whose income fluctuates may need to be more conservative since risk is already inherent in their career. For someone who has a stable income, I’d recommend that they have three to six months of expenses saved. For someone who is approaching retirement or is in a career where income can fluctuate, I would recommend that they have at least six months to one year of cash on hand.

What mix of funds do you recommend to your clients?

Everything has to do with timeframe. As with cash, I recommend clients consider the timeframe within which they are hoping to achieve their financial goals. If a client is looking at a short-term horizon - let’s say they have kids that will be going to college within the next five years - I would recommend that they focus primarily on cash, fixed income and bonds. If they have a longer time period before they will need the money they are investing, I’d recommend they invest around 60 percent of their money in stocks.

What advice would you give to someone in their 20’s or 30’s about building wealth?

They have to educate themselves. There is more information now than ever before, and the internet makes it much more accessible than when their parents were becoming financially independent. But it can be difficult to navigate through good and bad advice. Magazines frequently feature generalizations, which may or may not be beneficial for any one particular reader. Advice should be tailored to an individual’s specific circumstances to be most effective.

If something is too good to be true, it probably is. People in their 20’s and 30’s need to ensure they are not living beyond their means, and take responsibility for themselves - everyone needs to be their own CFO (chief financial officer). Just like people need different doctors for different situations, they need a team of supporters to help them with their financial decisions.

If given a choice, do you recommend investing in a Roth IRA or a traditional 401K?

If your company matches your 401K, you should be contributing at least up to the level that the company will match. If your income level permits it, you should then contribute to a Roth IRA until those limits are met. I always tell my clients to make sure they are taking advantage of retirement plans. If they own their own businesses, I tell them to treat themselves like an employee and leverage these options. A small business owner could begin a SIMPLE IRA or a SEP since the administrative fees can be less than the fees for a 401k.

What is the most important piece of retirement planning advice you would give to someone who is 30? Age 40? Age 50?

I tell all of my clients - no matter how old they are - that they should save as much as they can and they should live below their means, while still enjoying their life. Americans that are 65 years old now have a good chance of living until they are 90, and people in their 20’s and 30’s have an even better percent chance of living until they are 90. According to industry research, 51 percent of people will need long-term care, which can cost $100,000 a year. Clients may plan to have enough funds for retirement but don’t plan on getting sick. If your retirement plan omits long-term care, you increase your risk of running out of money during the best years of your life. I tell my clients that they should take a close look at all of their assets and consider how they will work together to help them live a comfortable life.

Also, insurance planning early on is important - Medicare does not kick in until the age of 65, and it’s likely that people will experience health issues before then. I find that most people are behind in retirement planning, but it only takes a few steps to get them to where they could be. Overall, I recommend that most everyone needs these three things: disability insurance, life insurance, and protection (a living will, a healthcare proxy and a power of attorney, and a will).

What tips do you have for cutting taxes?

Take advantage of the current energy credits for your home. This is also a great time for first-time home buyers, who can benefit from the first time home buyer tax credit until November 2009. If you are in a job-change situation, you should take advantage of COBRA to cover your health insurance for the first 18 months. This is something that the government will subsidize up to 65 percent right now.

For small business owners, I’d recommend having an accountant look at how you are incorporated. A CPA can help you evaluate your compensation, and ensure you are paying yourself in the most efficient way.

How would you recommend clients prioritize paying off debt and mortgages?

You should get rid of credit card debt as soon as you can. If you have one primary residency, there is no need to rush to pay off your mortgage, unless it is a personal goal of yours to be finished with your mortgage before you retire. I would recommend paying at least one additional mortgage payment a year.

What are some books you would recommend?

David Bach’s Automatic Millionaire and Smart Women Finish Rich are two of my favorites. For small business owners, I’d recommend The Brand Called You by Peter Montoya and Tim Vandehey

Barilotti Wealth Strategies LLC is located just off of Rittenhouse Square on 17th Street. For more information, visit barilottiwealthstrategies.com, or call (215) 964-9863.