Planning can prevent mishaps
Depending on the choices you made 10 or 20 years ago regarding your retirement, right now you are looking at a fairly secure portfolio, or instead wondering why you waited this long to get started. The same goes for life insurance and plans for potential long-term care.
If you’re one of the smart ones who knew in advance where to put your eggs, then congratulations. If you’re one for whom the responsibilities and challenges of adulthood quickly took charge and precluded any thought of getting ready for what seemed like the distant future, then don’t despair, you can still catch up. Either way, after age 40 you likely have a solid footing in your career and a better understanding of the importance of fi nancial planning. At this stage, you can implement a plan that works by taking stock of your established fi nancial health, looking at where it’s going and deciding where you want it go.
Retirement
The time for risk is when you’re young, so if you’ve already got your retirement savings well underway, good for you, and the only thing to look at now is whether you might want to change your portfolio to refl ect a more conservative approach.
According to John K. Paglia, Ph.D., and Ivan C. Roten, Ph.D., with Pepperdine University, it’s generally good to keep about 70 percent in stocks and 30 in bonds, to get long-term growth as well as some safety during market downturns. At this age, however, you can gradually shift more into bonds to protect what you’ve accumulated, while keeping about 45 percent in stocks if you’re in your 70s and about 30 percent in your 80s. Target-date retirement funds can help put your portfolio on autopilot, too. Just choose a fund that’s labeled with the year you intend to retire, and it will automatically adjust what it invests to refl ect your riskto-age ratio. On the other hand, if you’re in your 40s or 50s and just starting to invest in your retirement, start by putting your cash into a tax-favored retirement account such as an individual retirement account (IRA) or a 401(k), either of which have benefi ts such as deferred taxes and employee matching contributions. Next, max out your contributions to what the IRS allows. According to Rande Spiegelman CPA, CFP, vice president of fi nancial planning at the Schwab Center for Financial Research, currently, that’s $17,000 annually for a 401(k) and $5,000 for traditional and Roth IRAs. At this point a traditional IRA may be a better choice than a Roth. If you’re over 50, you can even add catch-up contributions.
Think you might fall short of your goals?
Then consider delaying your retirement for a few years so you can make more contributions to your retirement while postponing withdrawals. For example, according to data from Money magazine, if you retire at age 65 with $500,000 in retirement savings and withdraw $43,000 a year, your savings would last until about age 90, but if you delay retirement for fi ve years and max out your IRA contributions during that time, you would retire at 70 with $772,680 saved, allowing you to withdraw $72,000 a year until age 90.
Getting a part-time job after retirement is another option, and can even provide mental, physical and emotional benefi ts, too.
Life Insurance
In a nutshell, life insurance provides money to your benefi ciaries upon your passing for anything they need, from making up for your lost income and funding a child’s education, to paying off household debt or paying for your funeral expenses. You don’t need it when you’re young and single, but by the time you’ve reached 40, chances are you have people who depend on you for fi nancial stability, so if you haven’t looked into it, now is the time.
Financial guru Suze Orman advises that your policy should to be able to generate your salary annually without ever touching the principal; alternatively, it should have a face value of about 20 times your salary, minus any other resources you may have.
There are two types to choose from: term insurance or permanent insurance. Term life insurance offers protection for a specifi ed period of time but doesn’t build value. If you stop paying premiums, the insurance stops. You might buy a term policy that matches the time to pay off a mortgage, for instance. Premiums for term insurance are higher as you get older. Permanent life insurance policies don’t expire and offer permanent protection, with variations. You’ll enjoy security, fl exibility, cash value and lifetime coverage, and it’s probably your best bet if you’re over 40.Talk with your local agent for more information and about the possibility of combining both types of coverage.
Long-Term Care
If you feel you might be a candidate for long-term care as you age, then according to the American Association for Long-Term Care Insurance, you should consider hybrid long term care insurance.
The benefi t of this coverage is that either you use some or all of the long-term care benefi t in the policy, or someone receives a life insurance payment.
The other side of the coin, so to speak, is that these are typically single premium policies, meaning you write a single check for the coverage – and the check will likely be no less than $50,000, or probably twice that.
However, if you are concerned that the cost of long term care will be more than what you have saved, this can be an excellent choice. It’s never too late to invest, especially knowing that Social Security isn’t going to cover you as you get older. Call your agent for advice about what’s best for you, based on your age and risk, and get started now rather than later. Locally, you can check into your retirement options by using the services of T. Craig Lewis III, CPA, CFP, with the Lewis Financial Group, at 797-0447, or email tclewis3@comcast. net, or see the website at www.tclewis. retirementtime.com; and for life insurance and long-term care options, contact New York Life insurance agent Barbara Forte, at 227-5063, or email [email protected].com.
– Eric Lincoln
