GIVE AWAY MONEY NOW? You might be considering a large financial gift to your favorite charity or to your children. Charitable contributions aren’t limited, though their tax-deductibility can be. Meanwhile, with our kids, we might take advantage of the $14,000 annual gift-tax exclusion. But before we do, we should check we have plenty for own retirement.
BUYING A CAR? Think twice before financing it through the dealership. While dealership loans are convenient, the interest rate charged will include the dealership’s markup. That means you can likely get a lower rate by going to a bank or credit union—or by using a home equity line of credit. Unlike an auto loan, the interest on home-equity borrowing is typically tax-deductible.
TAKE STOCK OF YOUR BONDS. Our financial lives are chockful of bond lookalikes, including savings accounts, our regular paycheck, Social Security and any defined benefit pension—all paying us regular income, either now or in the future. Set against these income streams is a big income drain: our debts. Result: Our finances may be riskier or more conservative than our bond position alone suggests.
COULD YOU DROP INSURANCE POLICIES? If the kids have left home or you have $1 million-plus in savings, you might no longer need life insurance. With a seven-figure portfolio, you could probably also drop disability coverage and skip long-term care. Even if you can’t cancel policies, consider raising deductibles and extending elimination periods as your wealth grows.
SEE IF ESTATE TAXES ARE AN ISSUE. With 2017’s federal exemption at $5.49 million, few Americans need worry about federal estate taxes. State estate taxes are an issue in just a third of states, though state exemptions are often below the federal level. For most Americans, the biggest “death tax” will be the income taxes owed on inherited retirement accounts.
PONDER WHEN TO CLAIM SOCIAL SECURITY. Start with the calculator offered by United Capital. Many folks are inclined to claim benefits as soon as they retire, but often it makes sense to delay. To understand why, learn more about Social Security, including the advantages of delaying and the different strategies that couples might use.
SUPPOSE YOU LOST YOUR JOB. How long could you go before your financial life unraveled? This isn’t an issue for retirees—which is why they need little or no emergency money. But if you’re working, your plan for unemployment might include a cash reserve, slashing discretionary spending, a home-equity line of credit and withdrawing Roth contributions.
CONSIDER A TARGET-DATE FUND. Financial advisors push the notion that every investor needs a customized portfolio—and, indeed, we all like the idea that we have an investment mix specially designed for us. Yet most of us, whether we’re investing on our own or through an advisor, would likely fare just as well, if not better, with a target-date retirement fund.
CREATE A WISH LIST. Want more happiness from your dollars? Write down the major purchases you’d like to make in the next few years—perhaps a car, vacation or kitchen remodeling. Regularly revise the list, keeping only items you’re still enthusiastic about. Result: You’ll likely make wiser spending decisions—and you’ll enjoy a long period of pleasurable anticipation.
TRIM YOUR CHECKING ACCOUNT. If there were a guaranteed way to earn an extra one percentage point a year on your investments, you’d jump at the opportunity. So why would you leave excess cash in your checking account, where it likely isn’t earning interest, when that money could be in a high-yield savings account earning 1% a year or more?
WRITE IT DOWN. Want to spend less, drink less coffee or booze, eat less or exercise more? Keep a diary devoted to one or more of these things. For instance, if you write down every dollar you spend, you won’t just have a better idea of where your money goes. You’ll also be more conscious of when you’re spending—and that by itself will prompt you to cut back.
GET ORGANIZED. Keep the supporting material for your past seven tax returns. The rest can be tossed. If your brokerage firm and mutual fund companies provide cost basis information for your investments, there may be no need to keep old statements. Tell your family where they can find your will, a complete list of your financial accounts, and all your usernames and passwords.
CHECK YOUR PORTFOLIO PERCENTAGES. Foreign shares have topped the performance charts in 2017, U.S. growth stocks have surged, U.S. value has lagged, blue chips have outpaced small caps, bonds have puttered along and REITs have struggled. All this may have pushed your portfolio away from target asset allocation—and it could be time to rebalance.
ADD UP YOUR FIXED LIVING COSTS. Include mortgage or rent, car payments, property taxes, insurance premiums, utilities and other recurring monthly expenses. How long could you cover these costs if you lost your job? Are these expenses so high that you find it tough to save—and suffer constant financial stress? My advice: Keep fixed costs below 50% of pretax monthly income.
ELIMINATE DUPLICATION. Many folks have multiple bank and brokerage accounts, multiple funds that invest in the same market sector and even multiple advisors. This can make sense if, say, the goal is to increase FDIC insurance. But often it reflects a naïve notion of diversification—that more accounts somehow mean greater safety. My advice: Simplify—for your sake and the sake of your heirs.