The year 2002 brought interest rates to a 35 year low, a stock market that dropped to its lowest point since 1997 and the prospect of increased tensions internationally and at home. So, how do you financially react to the turmoil in the financial and economic markets? There is no better time than now to complete a financial checkup. Consider the following:
Examine your whole asset picture. List your assets and liabilities to provide you and your family a statement of your overall net worth. List your emergency contacts so that family or friends will have them. List your professional contacts, (attorney, financial advisor, etc.) the location of important documents (will, tax returns, insurance policies, etc.) and any special notes or concerns you would have in case of an emergency. (Booklets are available for these lists)
Protect yourself from the unknown by establishing a safety net. It is always wise to maintain an emergency fund. For those employed, it is wise to have from 3 to 6 months of living expenses available. For those already retired, a good safety net would be a reserve account with up to 3 years of living expenses covered.
Be prudent in your investments, but don’t abandon the stock market. A prudent option is to follow the Rule of 100. Subtract your age from 100 (Age 70 from 100 = 30). The remainder (30) is the percentage you could allocate to stock market (riskier) investments. Many retirees would be smiling today if they had followed this formula over the last 3 years.
Have you protected your assets in case of a catastrophic illness? Considering a Long Term Care Insurance policy could save your assets for a spouse or your children and grandchildren. Most middle income families need to consider this option.
Did you pay taxes on your social security benefits? You may have been surprised to learn that you paid additional taxes on your social security income. The IRS has a complicated formula for calculating this. Any increase in income may mean an unexpected tax. This can possibly be avoided by transferring assets within your portfolio.
Work with an Advisor who understands your goals and shares the potential downside of the market. A Financial Advisor helps you understand what factors will affect your accounts and the investment strategy you have selected. They need to meet with you regularly to review your progress.
By following these steps you will have established a good foundation for maintaining your retirement lifestyle and you’ll have a foundation which can be reviewed over time and modified as you see fit.
Paul G. Provencher, Chartered Retirement Planning Counselor
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