WORCESTER, Mass., Feb. 25, 2011 /PRNewswire/ -- Paul Mauro, CLU, CHFC of Legacy Financial Advisors, recommends these 11 important financial steps to take in 2011 to protect your wealth:
- Get Serious about Saving for "later". The new retirement is still a retirement which means working less or even fully stopping work. Saving in 401k and IRA plans has increased in the last decade but not nearly enough to secure the longer life expectancies. Increase your pre tax contributions at work to the maximum allowed. Save as much as you do at work after tax if you can, and invest regularly every month until you are close to retirement. Then pay attention to number 2.
- Protect what you have invested. Exercise some type of risk management. You can study your asset allocation and add more and more protection against negative market trends as you age.. Give up a bit of upside gain to protect the nest egg. Remember risk is free and protection costs money. If you cannot handle the time and effort necessary to do this proceed to number 3.
- Educate or delegate. You can manage very complex portfolios if you have the time and do the research. If you don't want to do the work hire someone else. Only when you are ready to delegate should you pay an investment management firm to take over. There are no benchmarks of age or amount of money that make sense. Young professionals without much in cash investable assets and a great command of technology can probably manage their own affairs for years. Highly demanding careers, older investors and larger amounts of money generally are the indicators of a need to hire outside help. The only thing you can really do wrong is nothing. Don't ignore your portfolio or it will go away. If you are realistically too busy with work and home life great. Hire help.
- Consider the sequential Roth Conversion opportunity. Conversion of IRA assets to ROTH IRA assets has benefits .You lose the required minimum distribution rules at age 70 1/2 and you create a true tax deferred opportunity that yields tax exempt income after 5 years. The problem of course is paying the lump sum tax on the converted assets. You can however, as of 2011 , regardless of income convert a portion of your IRA every year or every 2 years into a Roth. In this way you can build your own tax bracket in the future. If you can blend taxable income and tax exempt income you can create your own future effective tax bracket.
- Make a serious effort at saving high interest cost on your home . An extra payment per year on your mortgage can dramatically reduce your total interest cost. Run a mortgage calculator to assess your individual situation. If you have the opportunity to rewrite your mortgage to a low fixed rate, and accelerate the payments you can save even more.
- Get rid of those high interest credit cards once and for all. Minimum payments on credit cards are the worst way to pay off purchases. Even if you have to reduce 401k deposits for 6 months or one year do it to pay down the credit cards. Paying the minimum on a credit card means you may be paying as much as 25% in interest or more annually. So a $10,000 balance costs an actual $30,000 in payments.
- If you are a young worker save for retirement, and keeping your good credit is paramount. You can accomplish more with small retirement deposits if you really do start at age 30. Run a retirement calculator and you will see that a $2,000,000 retirement balance goal requires just $10,000 of deposits at age 30-66 .But if you wait until you are age 45 the required deposit is $20,000.
- If you have a young family consider buying a big block of term life insurance to secure your family security. I believe that you insure both parents to create a lifestyle security no matter who dies unexpectedly. Breadwinners need to be insured to guarantee their income. Child caring mothers are also very costly to replace, so life insurance is necessary for them too. Do not just insure debts or loans but enough coverage to create a pool of money so life can continue economically unchanged at a time of personal tragedy.
- If you are over 50 years old solve the long term care problem in your own way. If you have a family care solution planned out that is fine. If you are so affluent you can sustain high long term care costs fine. But be realistic, the long term care risk was called the "greatest risk of all " to your financial plan by Terry Savage in her latest book on Retirement. Yes you need to grind through the long term care insurance options to see if an insurance policy can solve the problem for you. You should also look at long term care riders on life and annuity policies. Most of all married couples who plan to live a long life risk the biggest problem of all. Bankrupting your spouse who then has to live without the money you saved for years. I find this topic becomes very significant to those of us who have experienced the issue in our own families as we attempt to help others secure their finances. Read the stories about long term care disasters and know they are true. Nobody is exempt.
- Update your estate plan. Now that the tax issues are resolved for the time being we know the estate tax rules. But there are many non tax reasons to update your estate plan. This is a good year to consider updating your wills, powers of attorney and health care proxies. Every state has peculiar rules you need to be aware of. Change your plans if you moved since you did them last. Also the non tax reasons for having family trust work are many. Consider a trust as a way to reduce probate cost and delay but also protect money for future generations. Trusts can provide insulation from creditors your children have, marital difficulties, and business issues. You can secure your grandchildren's legacy by using a trust to hold a block of money for a long time.
- Finally if this is all too much to do. Hire a financial advisor. Get realistic about your time and abilities. If you are a procrastinator an advisor can help you get things done. If you are disorganized an advisor can help you put your plan together. A financial advisory relationship is specifically NOT just an investment advisor relationship. Interview advisors and find one with the education, training and experience to suit your needs. Most advisory firms like ours have a few qualifications. Try to end up with an appropriate firm for your needs and the planners ability.
Securities and advisory services offered through SII Investments, Inc.®, member FINRA and SIPC and a Registered Investment Advisor. Legacy Financial Advisors, Inc. and SII Investments, Inc.® are separate and unrelated companies. SII does not provide tax advice.
Any examples mentioned are for hypothetical purposes only. They are not intended to portray past or future investment performance for any specific investment.
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SOURCE Legacy Financial Advisors, Inc.