Now that 2016 is over, and the election that consumed us is, too, thank goodness, it’s time to turn our thoughts to other things.
The Trump administration is laying the groundwork for the years ahead, and you should be, too. Why not make 2017 the year that you move from basic financial planning to preparing for financial independence?
What’s the difference? Most people look at financial planning this way: “I’ll put some money into this investment here, and some money into that investment there, and see what happens.” When you’re working toward financial independence, you’re looking at all aspects of your plan to help ensure your outcome is what you want it to be in retirement.
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If you’re within 10 years of retirement, or if you’ve already retired, these are the things you should be looking at in 2017:
1. Risk exposure. Right now, the Standard and Poor’s 500-stock index is in its 94th month of a bull market. It’s the second-longest bull market in U.S. history. And that’s great. But it can’t last forever. The average bull market runs 54 months.
Our last bear market lost approximately 57%. If you’re in your 20s or 30s and you’re consistently buying into the market, a downturn or major correction typically won’t hurt you in the long run. But if you’re retired or approaching that window, that volatility could be detrimental to your future. It’s time to re-evaluate the risk in your portfolio.
2. Tax planning. Tax efficiency is one of the best ways to keep more money in your pocket. Sit down with your adviser (make sure he or she has the tax qualification necessary to assist you) or CPA and look at ways to keep your taxes low. Whether it’s a Roth conversion in the future, municipal bonds or possibly annuities, take control now to help ensure that more money stays with your estate.
Most people sit down with their CPA once a year, at tax time. The CPA takes their information, punches in some numbers and says, “Here’s what you owe,” or “Here’s what you get back.” It’s a reactive way to deal with tax planning. Be proactive this year.
Meet with your CPA or adviser before the year is up. This will allow you to put strategies into place that will help you keep your taxes under control.
3. Expenses. Sit down and look at how much you spend month to month. I don’t know anyone who isn’t shocked when they see that amount.
It’s a difficult moment, but it’s something you should know about yourself to be able to plan out your retirement – vacations, golfing, visiting the grandkids. You can use software programs, or just keep an eye on your monthly bank and credit card statements. You’ll soon see your spending patterns – and perhaps some things you can change.
4. Long-term care planning. What could happen to your retirement if you have a health issue? Most people are unaware of how quickly long-term care costs can impact their nest eggs. Annuities are one option to keep yourself covered in the event of a health crisis while keeping your money accessible. And if you don’t have any health problems, that money often can be passed on to your beneficiaries tax-free.
5. Wealth transfer. Make sure you work with a qualified attorney or professional to create an estate plan that can help make sure the money you don’t spend is passed on to your children, other family members or charities of your choice. This might mean creating a living trust, crafting a will, buying life insurance and/or creating an inherited IRA that could allow your children to take your tax-deferred savings and keep the taxes low.
This is quite a list, and if you’re overwhelmed, you can take it one step at a time. But to work toward your financial independence, you’ll need to take into account these considerations – and the professionals who can help you with them – working together.
Many times, people will have an attorney, an insurance representative and a financial adviser, but they aren’t working together. This is your year to change that, and to help shield yourself from the potential pitfalls that some Americans face during their retirement years.
Reid Abedeen is a partner at Safeguard Investment Advisory Group LLC. As an investment adviser, he has helped retirees for more than 18 years with issues such as insurance, long-term care planning, financial services, asset protection and many other areas. He also holds California Life-Only and Accident and Health licenses (#0C78700).
Kim Franke-Folstad contributed to this article.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
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