A little planning now gives peace of mind later
By Deborah Jeanne Sergeant
The beginning of a new year can represent a good time to make a few resolutions, whether it’s to get in better shape, lose a few unwanted pounds or fine tune your financial plans.
Here is what a few area financial experts recommend to improve your fiscal fitness:
“It’s a good idea to look at your debt. If you have a mortgage or auto loan or student loans if you cosigned for a child, or credit card debt, look at what you’re paying in interest. You may be able to refinance it. Interest rates are lower than they’ve been in some time for the last 20 or 30 years. Some people might be paying 5% to 6% but have equity in their home and get it down to 3%. If you refinance a mortgage, you go off assessed value of the house. Your house might be worth a lot more than it was two years ago.
“You could examine some of your life insurance or other types of insurance that may have been needed while you had a family counting on you. If there’s not necessarily a need for insurance, it might make sense to stop paying for it, like a term insurance policy at age 35 for 30 years. Or a whole life policy where you don’t necessarily need it. You could surrender it or roll it into a different type of insurance vehicle, depending on the terms.
“Develop a plan for Social Security. For a lot of folks, Social Security, especially with dual-income households, is a big chunk of their retirement income. Sometimes people think when they retire, that’s when they claim Social Security. That may make sense but if two people are retiring at 62, it may not make sense for both to do it. My general rule is if you have a reasonably healthy couple, the spouse with the better pay should wait until age 70 to claim Social Security.
“It’s worthwhile to come up with a budget and see how much money you are actually spending each month. It’s amazing how many people will add up all the expenses they can think of that seem common and ballpark that as a number, but they’re missing a lot of things. A lot of people who have an older home might think they spend $7,000 a year, but they really spend $8,500 for a one-time expense of siding. But next year, it was another ‘one-time’ expense of $7,000 for a down payment on a car. Every single year, they have a ‘one-time’ expense for something.”
— Ethan Gilbert chartered financial analyst, certified financial planner and partner at Rockbridge Investment Management in Syracuse
“Change your mindset. When we think about saving for retirement, most of us think about the end goal, the total dollar amount we’ll need, the lump sum. Before you retire, you’ll want to figure out how much of that amount you’ll be able to use each month or each year. This will help you in thinking of your retirement in terms of an income stream and not just a dollar amount.
“Consider all your income sources. Your retirement plan may not be your only source of retirement income. When you’re figuring out how much income you’ll have once you’re retired, be sure to include pensions, Social Security payments and other investments or savings in your calculations. You can find out how much you’ll get from Social Security by visiting www.ssa.gov.
“Think about the best time to start taking income. Most retirement plans won’t allow you to take withdrawals before age 59-1/2 without incurring penalties, but also require that you start taking income by age 70-1/2. Social Security payments increase the longer you wait, but only up to a certain point. You may want to talk to your financial professional to make sure you’ll be able to make the most of your money and benefits while still meeting your needs.
“Remember taxes. If you are contributing to a traditional retirement plan right now, you’re putting money into your account pre-tax. That means you’ll have to pay taxes on both the contributions and any earnings when you withdraw the money. On the other hand, if your contributions go into a Roth account, any money you withdraw at retirement will be tax-free, since you already paid the taxes on it. Keep that in mind as you develop your income strategy.
“Understand your withdrawal options. When you’re ready to withdraw money from a retirement account, you have a number of options to choose from: fixed dollar amounts (you withdraw the same amount of money each month, quarter, or year); fixed percentage (you take out the same percentage of your portfolio each time, so your income will depend on how much you have in your account); or investment earnings only (you take out only what your account has earned in the last month, quarter, or year. This leaves your principal untouched).
“If you need help developing a retirement income strategy that fits your specific needs, always contact your financial professional. He or she is happy to work with you to ensure that you can look forward to retirement with confidence.”
— Kurt M. D’Angelo, financial consultant, Equitable Advisors in Syracuse
“I want people to ‘gain muscle’ and ‘lose weight’ at the same time, which can be done.
“Get a financial checkup. Make it just as religiously as you do getting an annual physical checkup. It should include a few things, like ‘What happens if I live?’ You want to review quickly what your living expenses are. It’s not just for the idea of eliminating things. Life is short. As much as possible, you want to spend money on things that are important or meaningful to you. We all have family obligations. No one’s money is 100% his own, but don’t be a financial martyr. Spend on things you love to do and by all means enjoy them.
“Make sure if you’re still working that you have an opportunity to save in a retirement plan. Take advantage of the tax incentives. Take advantage of an employer match. It’s also wise to save money outside of a retirement plan.
“Talk to any investment professional and he or she will talk about financial diversification. Don’t have all your money in one investment or one stock or if something goes wrong, you’re in deep trouble.
“Don’t invest it all in your business. It may be very difficult to get out of.
“I encourage people to review whatever insurance policies they have in place, whether life, disability or long-term care. It is not morbid to do that. We’re all going to die someday. It’s realistic.
Make sure your policies are sufficient and there are no unpleasant surprises down the road. Check on beneficiaries.
“A lot of times when people are in their 50s, they think about downsizing and possibly moving. Don’t go in headfirst. Go in a little at a time. I’ve helped many people retire and I’ve always encouraged them, ‘Don’t just buy a house somewhere South. See if you’ll like living there.’”
— David Mirabito, senior financial services executive and financial planner with Mirabito Financial Group with MML Investor Services in Fulton