This blog is a follow-up to the article “SAFEGUARDING YOUR FINANCIAL FUTURE PART TWO”, and will hopefully provide additional information about preventive measures which can be taken to prevent, or at least minimize, financial distress. PART ONE was primarily geared towards those at the beginning of their careers. PART TWO made recommendations for those who are more established. In PART THREE, our firm would advocate these precautions, and/or suggestions for those in the middle of, or nearing the end of their working careers or anticipating requirement:
1) Assuming that you have made headway in paying down your mortgage, avoid the temptation to obtain a second mortgage or home equity loan. The deduction that you receive for the interest on such loans may not make much of a difference on your bottom line, especially if you will retire with lower income. Additionally, it may be much harder to refinance such a loan, as lenders may be hesitant to offer long-term loans to older borrowers.
2) If you have invested in a 401(k) or other retirement plan, resist the urge to use it as a savings account. Withdrawing funds will deplete the funds available when you retire, and will also cause immediate tax consequences. Even borrowing against such a plan may limit your ability to continue to fund it, again resulting in less money available when you retire.
3) If you are going to send your children to college, begin a 529 (“Coverdell”) Plan which allows you to set aside money tax free for their later educational needs. Avoid using student loans as the primary source of college funding as much as possible, or you may share the financial burden with your child.
4) Do not cosign loans for children or grandchildren! Having established a track record of good great, you will frequently be asked to cosign for relatives without an established credit history, or a poor credit history. In the event of default, the lenders will generally pursue the cosigners who have good credit more aggressively.
5) If you have not drafted a will (as recommended in PART TWO), do so immediately. It will minimize frustration and disagreement on the part of your heirs, especially if you have accumulated assets. Do not assume that everyone will just “get along” and divide things up as in an orderly manner. Make sure that your heirs know where the will is, and how to obtain it.
6) Double-check your insurance to determine if there are any adjustments to coverage/benefits because of increased age.
7) Re-evaluate your homeowner’s and motor vehicle insurance policies to make sure that the available coverage is sufficient to protect your assets.
8) Invest in a security system. It will help to protect your assets, and may allow for a reduced premium on your homeowner’s insurance.
9) The economy is always uncertain. Don’t make any financial decisions which “assume” that your income will grow as it has in the past, or even remain the same. You don’t know when the next economic “bubble” will burst, and what effect that it may have on your employment and income. This is especially true if your income is based in part or whole on commissions, bonuses or other incentives which can vary.
10) Set aside at least two months’ worth of salary, preferably more. Even if you have disability insurance, it usually will not begin paying benefits until 60 days after the date of disability. You will need a source of funds to maintain the household expenses.
11) Prepare a health care directive to guide your family in the event of a catastrophic injury or ailment. It will save them from having to make heart-wrenching decisions later on if you should suffer such an injury or condition, requiring extraordinary (and potentially expensive) medical care.
12) Keep important information, such as life insurance policies, stock certificates, etc. in a safe deposit box, but make sure that other people (that you trust!) also have access to the safe deposit box in the event that you become incapacitated.
13) Keep important information, such as life insurance policies, stock certificates, etc. in a safe deposit box, but make sure that other people (that you trust!) also have access to the safe deposit box in the event that you become incapacitated.
14) Plan a post-retirement budget, and determine if you will be able to afford it. Consider all sources of income, including social security, defined-benefit plans, pension, disability and annuities. Know the difference between the retirement sources that will continue until death, and those that may run out, such as 401(k) plan. If you retire too early, it may be difficult to re-enter the job market later on, at least in your previous vocation.
15) Too often individuals retire early, only to find that their income cannot satisfy their pre-retirement expenses. In such an event, do not rely on credit cards to supplement your post-retirement income. If your income is fixed, you will be unable to manage the growing balances and interest.
This will conclude PART THREE. I am sure that at some point I will realize that I have left out some tips which should have been included in the series, so there will probably be a supplement at some point to address any matters which were omitted or overlooked.