Brice Carter, CFP®, ChFC®, CIMA®
Although traditional New Year’s resolutions such as eating healthier and making it to the gym more often are likely to remain the most common year-end goals, the aging American population is increasingly resolving to focus on their financial and retirement goals.
As with any goal, you increase the odds of achieving your goal by ensuring that it is focused, attainable, and most importantly, written down. By writing down your goals, you solidify your commitment and create an avenue from which to hold yourself accountable. With resolutions that affect your retirement outlook, the goal should be to complete steps that ultimately will have a long-lasting impact, even though it may take years to reap the benefits.
Here are three retirement resolution steps that can have a profound impact on your financial future.
1. Know What You Own
Do you remember why you have that old annuity, life insurance policy or mutual fund account? Do you know what your asset allocation is?
Begin 2017 by taking an inventory of your assets. This will help you determine your asset allocation. Your asset allocation is the composition of stocks, bonds and other assets in a portfolio and is vitally important in determining the level of diversification and, therefore, the risk you are taking.
It’s important not just to know what funds you own but what those funds are made up of. The notion that owning several funds ensures diversification is a common misconception. If your funds all invest in the same thing (e.g., large-cap U.S. stocks), you may inadvertently be exposing yourself to additional risk. To determine what the underlying holdings are in your mutual fund, IRA and 401(k) accounts you may need to enlist the help of a professional financial advisor, such as a certified financial planner. They should be able to show you where your funds overlap, what the risk of your allocation is, and recommend an appropriate allocation.
Asset allocation is perhaps the most important component in a portfolio's long-term health. Ensuring that your allocation aligns with your risk profile and goals is critical to long-term success.
2. Consolidate And Understand
If you have ever cleaned out your garage or basement, you know that we tend to accumulate “stuff.” Often this stuff had a purpose that may no longer exist, or we may not recall what its purpose was. Our balance sheet can sometimes accumulate stuff as well. Each time we switch jobs, we may open a new 401(k), or, when our friend from church becomes a broker, we may buy a new mutual fund. Over time, this “stuff” builds up and can become difficult to track and manage. That is why each line item on your balance sheet should have a clear and focused purpose behind it.
In 2017, set a goal of cleaning out your balance sheet. Having done the work of understanding your proper asset allocation, begin to consolidate accounts that can be consolidated, such as IRAs and 401(k)s. Of course, make sure that when you consolidate you maintain a proper asset allocation and assess any tax consequences of making changes to an account. This will make monitoring, managing and understanding your portfolio easier.
3. Finally Get That Estate Plan Finished
Although not retirement related, the need to complete an estate plan becomes more important the closer retirement gets. You have talked about it for years, but it never seems to get done. It can be tough to face the question of our own mortality, but for the sake of your family, proper estate planning is a must. Though estate planning is vital to ensuring the proper disposition of your assets at your death, it is also important in making sure your health care wishes are fulfilled.
In addition to drafting wills and trusts for the transfer of assets, estate planning practitioners often recommend financial and health care power of attorney documents. These documents appoint individuals you choose to oversee your health and financial decisions should you become incapacitated.
As with any New Year’s resolution, it is easier said than done. By breaking down your resolution into small manageable steps and holding yourself accountable, you ultimately increase your chances of accomplishing your goal. Your ultimate goal may be retirement, and these retirement resolutions lay the foundation for a retirement plan by organizing your finances and putting you into a position to develop a comprehensive financial plan.
The commentary in this article reflects the personal opinions, viewpoints and analyses of Brice Carter, and should not be regarded as a description of advisory services provided by Financial Strategies Group, INC or performance returns of any Financial Strategies Group, INC Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this article constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Financial Strategies Group, INC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.