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Out with the Old Junk… In with the New Year!

A recent article on the Value Walk website, “Cleaning out Your Financial Trunk – Year-End Tips,” describes the not-so-pretty sight that can be found when you take a look at what’s inside your car trunk: clothes, jumper cables, sports equipment, camping gear, and maybe even a box of tissues. This unique collection of potentially valuable items can accumulate over months. Many of us will just shut the trunk and procrastinate. Without too much effort, you might transform that portable dumpster into a clean, useful space of organizational Zen.

Many folks have the same issue with scattered finances: IRA here, 401(k) there, trust account, savings account, bank CD, insurance policy—plus a spouse’s accounts. Is there any cohesive strategy behind these accounts? Generally, the answer is “no.” Like a messy car trunk, a sloppy investment portfolio with no objective, time horizon, or defined risk tolerance could take your retirement off-road where it can get lost.

The first step in de-cluttering your financial mess is determining what your targeted retirement number is. This requires you to calculate the following:

  1. Your Annual Budget

  2. Annual Income

  3. Planned Retirement Date

  4. Life Expectancy

Examining this data with your risk tolerance and expected return should help you see if your retirement goals are realistic or overly optimistic. After you find a reasonable dollar figure target for retirement, you still need to incorporate important facets of financial planning into your fiscal affairs. Here are some financial planning priorities on which to focus:

Estate Planning: No excuses, you need to have an estate plan in place with a living trust, a will, a financial power of attorney, and an advanced healthcare directive. Without these, heirs could be left fighting with the courts and other family members over rightful transfers of assets and important decision-making if you become incapacitated.

Tax Planning: Don’t forget about the IRS. Talk with an experienced estate planning attorney about ways to legally lower your tax liability. Contributing to your 401(k)/IRA accounts and recognizing various deductions (e.g., charitable contributions, business write-offs) are just a few strategies to keep more of your money.

Insurance: Look into protecting your nest egg with some term life insurance.

Clean up your messy financial trunk with comprehensive investment and financial planning and reach your Zen-like retirement goals.

Reference: Value Walk (December 20, 2015) “Cleaning Out Your Financial Trunk – Year-End Tips”

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