Time for a Financial Check-Up

Nov 27, 2017

Financial Well-being

You go to the doctor to check on your physical well-being. Let’s take a look at your financial health as well. This is the perfect time to start looking at what is happening with your finances before the rush of the Holiday Season begins. A financial checkup will confirm your areas of financial strength and help to point out areas that need some review with your financial planner. If you are not sure what this entails, we will provide a list of items to start the discussion.

Savings Vehicles

It is a good practice to periodically review your income and expenses to make sure that you are not spending too much to provide for a comfortable future. Here is a list of items that should be part of your regular savings program.

Emergency Fund

First and foremost, start saving for an emergency cash fund. A basic rule of thumb is that you should have 3 to 6 months of living expenses set aside in a bank account. These are funds that one may need in a hurry for things such as an unexpected repair (house, car, etc.), medical bills and the like. You would not want to liquidate investments at the wrong time, (such as a short term down market) just to pay an unexpected bill.

Maximize your 401(k)

Now is the time to review your paycheck to make sure you are saving as much as possible in your retirement plan. If you cannot save the maximum, at least save enough to maximize your employer’s match. This is like getting free money! You can save $18,000 in a 401(k) plan for 2017 and an additional $6,000 if you are 50 years or older. Other plans have different limits so check with your advisor or CPA to make sure that you are taking advantage of the deduction.

College Education Funds

With the cost of college education continuing to skyrocket, it is a good time to see if you will have enough money saved to help with education costs. Once you have estimated the cost of college, you can invest in a variety of plans that have tax advantages. The most popular plan is a 529 account. Advantages include tax free appreciation of the investment if used for college expenses and many states allow a current tax deduction for the contribution. A careful review of the options should be done with your advisor.

Risk Management

Insurance Review

The first thing to consider in managing every day risk is to review your insurance protection. Do you have enough insurance in the event of your death or disability? Do not assume that your employer provides enough protection. Check this out! Often you can add additional low cost insurance through your employer’s group plan.

If you are approaching retirement and college expenses are behind you, perhaps the need for life insurance has decreased. You may be able to reduce that coverage. However, a need for long term care insurance may now be an issue. Keep in mind that most insurance is an expense for coverage that you hope you never need. However, if the need does arise, you will be glad that you have economic protection for you and your loved ones.

Review your retirement allocation

That’s correct. Your retirement plan needs to be reviewed with an eye toward risk. A portfolio invested too aggressively can risk your life savings, especially if you plan to start using them just prior to an untimely downturn in the markets. Conversely, a portfolio that is too conservative may require you to work more years than you want before you can comfortably retire. This is one of the most important topics to discuss with your advisors!

Other Matters

Tax Planning

Tax planning can be done any time of the year. While tax planning is often done at the last minute, there is no reason that you cannot start today. Sell securities that are losers if they no longer have a positive outlook. That loss will help at tax time.

Review your tax withholdings to ensure you have enough tax withheld to avoid penalties for underpayment of tax.

Hold the correct assets in the proper accounts. Generally, income-producing assets should be held in retirement accounts while those generating capital gains should be held in “non-qualified” accounts. There are many variables that influence this principle, so make sure to discuss with your advisors.

Estate Planning

Do you have basic estate documents in order? Do you have a will, power of attorney and medical directives? Do your loved ones know where these documents are held? Having these basic estate documents will ease the administration of your affairs if that becomes necessary.

It is also vital to review the designated beneficiaries on your retirement accounts. Do not assume that they will be distributed as you intend Make Sure! This is especially important if you have a life-changing event such as a recent marriage, divorce, birth in the family, etc.

Once you have completed your checkup, share your findings with your financial advisor to see if any changes need to be made. Your life is certainly not static. There is no reason that your financial plan should be. Making appropriate changes to your financial plan now will help you reach your future goals.