New Year Resolution: Review Your Financial Plan

It’s that time of the year.  January 1st is nearly upon us, so…we faithfully resolve to…eat healthier foods, lose 20 pounds, be a better spouse, regularly and vigorously exercise, be more patient with family and friends, work twice as hard for that elusive promotion, deepen our spirituality, and so it goes.

Very worthwhile pledges indeed, but it might make sense to add one more:  to review our financial plan.  Whether formal or informal, we all have one, and that plan needs attention every now and then.

Your financial plan is comprised of five basic elements:  1) an estate plan;  2) a retirement plan;  3) investment package;  4)  tax situation;  and 5) risk management.  How does your plan measure up for the New Year?  Let’s review the most basic fundamentals.

Estate Plan.  At bare minimum, every adult needs a will, durable power- of-attorney (financial), and durable health care power-of-attorney.  These documents need to be current, accurately reflect your wishes, and authorize the proper institutions and individuals to act on your behalf.  For some individuals and families, a more sophisticated plan might be appropriate…perhaps involving one or more trusts.  Does your estate plan meet these standards? 

Retirement Plan.  Along with health care coverage, we need an effective and practical plan to replace employment income during our later years.  Social Security is not the answer!  A good plan begins with a clear assessment of where we are today and how we hope to live 10, 20, 30 or more years down the road.  Does your ‘plan’ get you from where you are today to where you need and want to be?

Investment Package.  Some people have a carefully designed investment plan that is being thoughtfully executed.  Others have a piecemeal plan, one that consists of funds here, stocks there, CDs and savings accounts in multiple banks, and, of course, the usual IRA and 401(k) accounts.  How does your plan look?  Is it set forth in writing?  Do you have clearly defined investment goals?  What is your tolerance for risk and volatility?  Does your plan make sense in light of your goals and risk tolerance?  Are your investments titled so as to harmonize with your estate plan?  Who is monitoring your plan and how often? 

Tax Situation.  Ah…the taxman!  There are so many possibilities for minimizing taxes.  They include but are not limited to tax-smart investing, taking advantage of an employer 401(k), determining whether pre-tax, Roth, or both are right for you, and, of course, taking advantage of all possible deductions.   It’s also important to consider how one might minimize or eliminate estate and inheritance taxes.  When is the last time you discussed your tax situation with your advisor?

Risk Management.  With regard to risk management, we’re really talking about adequately insuring ourselves against certain types of risk such as…loss of life…loss of income…illness…loss of home and other property…loss of assets due to innumerable forms of liability, and long-term disability.   Level of risk is different for everyone as is the affordability factor.  When is the last time you worked with someone to assess your personal risk levels?

It’s 2012!  Ring in the new year and resolve to review your financial plan.  Sit down with your advisor(s) and assess your current situation and possible needs. 

It just may be one of the wisest New Year resolutions you ever adopted!!

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