Over the course of one’s lifetime, different financial strategies should be considered. What follows is a summary of financial issues confronted by different groups of investors. It is important to note that these strategies are not necessarily appropriate for any one person’s personal or financial situation but rather show areas of focus generally experienced by different age groups. Financial planning is an ongoing and individual process. In order to determine the approach best-suited for one’s unique goals, asset composition, risk tolerance and time horizon, a financial planner should be consulted.

Ages 20 to 35

Budget

You should have a budget in all phases of life to provide the fundamental building block for accomplishing future financial goals. No one gets excited about creating or living by a budget, but the financial peace of mind that results from knowing where your funds are spent each month, as well as having an emergency fund for life’s unexpected twists, is worth the potential sacrifices and investment of time. Try to build up at least three months worth of living expenses in an emergency fund if both spouses work and six months worth if there is only one wage earner.

Debt Reduction

There is a delicate balance between saving for future goals while reducing interest expenses from monthly payments on debt obligations. Work to pay off debt with the highest interest rates first, unless you have a small balance or a higher monthly payment on other debt obligations. A financial advisor can run calculations that will show how much faster debt will be paid off with additional payments.

Education Savings: 529, UGMA/UTMA

Two of the more popular education savings vehicles are the 529 plan and the UGMA, Uniform Gifts to Minors Act, or UTMA, Uniform Transfers to Minors Act, accounts. UGMA/UTMA accounts are almost identical and, for the purposes of this article, will be explained as one. Both the 529 and UGMA/UTMA accounts allow for after-tax contributions, but the 529 grows tax deferred, and funds can be withdrawn tax-free if used for purposes of higher education. Some states offer a tax benefit to residents for investing in their state-sponsored 529 plan.

The annual investment income from UGMA/UTMA accounts is taxable, but the first $950 of earnings is tax-exempt, the next $950 is taxed at the child’s rate, and additional earnings above $1,900 are then taxed at the parent’s rate. Funds can be used for anything that benefits the child, including a car, pre-college education, etc. At the age of majority, which varies among states and the two account types (UGMA/UTMA), the account becomes the child’s asset.

Retirement Savings

Begin saving for your retirement, as the amount you contribute in early years (and the employer match, if available) will greatly enhance your assets available at retirement due to the long time horizon. If you can afford to, make your post-tax contributions to the Roth employer plan, as it should provide a higher net income in retirement due to the tax-exempt distributions. If a Roth option is unavailable, consider opening a Roth IRA and, after funding the employer plan to receive the maximum match, direct the remainder of contributions up to the limit (currently $5,000/year under age 50 and $6,000/year for ages 50+) to it. If you are able to contribute more than that, you can increase your employer-sponsored plan contributions until you reach the limit there of $16,500 for those under 50 and $21,500 for those 50+ (for 401(k), 403(b), 457(b) and SAR-SEP plans).

Ages 35 to 50

Life Insurance*

It is ideal to have enough life insurance to provide a financial cushion for your spouse and, if affordable, coverage to provide for the education for children. Don’t assume that group insurance through work is enough, as every family is comfortable with a different amount.

Disability Insurance*

You don’t need to over-insure, but you do want to have enough coverage or funds to cover the basic cost of living, as well as potential health care expenses that could result from disability.

Estate Planning

A common misconception is that estate planning is only for the elderly or the wealthy. However, if you want to outline where funds are directed at your death, it is important to create a will or title assets properly. An estate planning attorney can also assist you in creating a living will, specifying your wishes for medical care or a power of attorney that will allow a person to act on your behalf.

Flexible Spending Account

Flexible Spending Accounts are a great option with your employer to have tax-exempt funds to pay for health care. Funds are deducted from each paycheck, with the full annual amount you elected to contribute immediately available at the start of the plan year. If you leave an employer after using the benefit, but haven’t fully funded it, you will not have to repay it; however, if you have not used your funds by the end of the plan year, you forfeit them.

Ages 50 to 65

Retirement Income Preparations

Your financial actions during these years will dramatically influence your retirement. Review your financial situation to evaluate if adjustments need to be made either to savings or expectations for retirement. It is also of critical importance that you review assets with a financial professional (including work retirement plans) to ensure investments are appropriately allocated for your time horizon and risk tolerance.

Long-Term Care Insurance

Long-term care insurance increases in cost as you age; therefore, while you’re young and healthy, it is advisable to research your coverage options. Types of long-term care policies include asset-based coverage, traditional coverage and shared care coverage for couples or for up to four family members. There are multiple variables in crafting a policy to meet your needs that should be reviewed with a licensed agent.

Ages 65 to 75

Retirement Plan and Income Strategies

Once you retire, it is critical you work with a financial professional to outline your income sources and strategies for retirement. This will require a series of meetings to fully understand your financial goals and comfort level with risk.

Pension Options

If you have a pension, you will likely have decisions to make at retirement. Some companies only offer a traditional pension payment, but most offer a choice between two options: a pension or a lump sum.

Social Security

One of the most common questions for retirees is when to begin their Social Security. An advisor can run calculations on what makes the most sense in your situation; however, the Social Security Administration’s web site offers these parameters: If your normal retirement age is 66 and the benefit is $1,000 per month, then if you begin at 62, the monthly amount will decrease by 25 percent to $750. If you begin at 70, the monthly benefit will increase 32 percent to $1,320.

Health Insurance/Medicare

If you retire at your “normal retirement date,” as defined by the Social Security Administration, health insurance is less of a financially taxing issue but will still present complexities with Medicare and supplemental insurance. It is important to consult with a qualified professional about which supplemental policies may be right for you.

Age 75+
Estate Planning

Will Update

Throughout life, as your desires change, as well as your asset types and balances, you will want to revisit your will and make adjustments needed to ensure that you are able to maximize the legacy you leave, minimize taxes and, most importantly, that funds transition according to your desires.

Lifetime Gifting

The current gift tax exclusion – the amount you can give any one person in a calendar year without owing tax – is $13,000 (adjusted annually). You can make a gift of five years worth of the annual limit, or $65,000 in one year, but will not be able to make any additional gifts during those five years.

Life Insurance

Most people don’t need life insurance at this stage of life. However, it is a tool that may provide leverage for your assets to maximize your legacy in a tax-efficient manner. If you have a large estate and desire to minimize taxes at your death, life insurance can be a part of reducing the tax burden to your estate or ultimate beneficiaries. When evaluating life insurance, it is best to do so with an advisor that has access to multiple carriers and can ensure you receive the most efficient pricing.

Medicaid

Medicaid is an issue that most clients don’t think about until they are near to using the coverage. An important point of consideration is that any transfers out of your estate or gifts during the five years before you need care on Medicaid will be counted against you, and you will be responsible to pay the cost of an equivalent amount of coverage yourself before the Medicaid benefit begins.

SEARCH   GO