Articles

    A Financial Wellness Check-up in 11 Steps

    A Financial Wellness Check-up in 11 Steps

    Wellness, at its core, means being in a good place. It can apply to a person’s physical, mental and even financial state. And yes, as nebulous as the concept might seem, a person’s wellness can be measured.

    But what does wellness actually mean in terms of a person’s overall financial health? And if financial wellness can indeed be measured, how to go about it? “Wellness is very personal,” explains CERTIFIED FINANCIAL PLANNER™ (CFP®) professional, Marguerita M. Cheng, who heads Blue Ocean Global Wealth in Gaithersburg, MD. “Everyone has their own needs, goals and dreams. It’s making sure you are on track to do what is important to you and gives you peace of mind that financially, you’re covering your needs, you’re supporting your values, you’re on track to meeting your goals and you’re in position to fulfill some of your dreams and wishes.”

    Just as there are certain basic indicators — weight/body mass, blood pressure, cholesterol level, to name several — to measure a person’s physical wellness, there are certain measurements to assess a person’s overall financial wellness. And as important as it is for people to periodically get an assessment of their physical wellness, so, too, is it critical that they periodically take stock of their financial well-being. The following checklist provides a starting point for conducting your own financial wellness checkup. Use it to see where you stand, then, if there are specific areas where your financial health could be improved, consult with a CFP® professional for guidance on how to go about addressing those areas of concern. To find a CFP® professional near you, visit the Financial Planning Association’s searchable national database at www.PlannerSearch.org.

    1. Personal balance sheet. List all your assets (investments inside and outside retirement plans, cash accounts, home/real estate and other assets), minus your liabilities (debts, chiefly, including mortgage and other outstanding loans, credit card balances, etc.), to determine roughly      what your net worth is. This helps you see where you stand in the big picture.
    2. Household cash flow. To determine your cash flow, figure your total income, then subtract your expenses. This helps you see whether you’re living within your means, identify discretionary areas where you may be able to curb spending, and figure out ways to allocate more toward meeting your highest priorities.
    3. Debt. Are you able to pay down credit card balances wholly each month? Or, do you struggle to pay off those balances and feel like debt is managing you instead of the other way around?
    4. Saving toward goals. Are you making enough progress in setting aside funds to meet your short- and long-term goals — things like buying a car or a home, taking a vacation, funding a child’s education and funding your own retirement?
    5. Cash reserve/emergency fund. Do you have an adequate amount of readily accessible “just-in-case” cash set aside for emergencies — preferably enough to cover at least three to six months’ worth of household expenses?
    6. Asset allocation. Is your mix of assets, including investments, retirement plan holdings, bank account holding, etc., appropriately diversified for your circumstances, stage of life, needs and goals?
    7. Credit score/rating. Have you reviewed your credit score and credit report lately? When seeking to secure a loan, open a credit card account or take other important steps, your credit score can work for you or against you. Not only can a review of your credit report identify potential identity theft, it can help you identify steps to strengthen your overall credit score. It’s therefore important, says Cheng, to check with the major credit bureaus, Experian, TransUnion and Equifax, on an annual basis to see where your credit score stands. Visit www.annualcreditreport.com to access a free credit report.
    8. Insurance. Are you and your family adequately protected financially from risks to health and property? Which type of insurance do you need, and how much coverage should you have? If others depend on your income, do you have life insurance and disability insurance? If you’re a homeowner, do you have an adequate amount of homeowner’s coverage? If you rent, is your renter’s insurance coverage adequate? Is your health insurance coverage adequate? How about auto insurance? And could you benefit from other forms of insurance, such as an umbrella policy, long-term care insurance, professional liability insurance or identify theft protection?
    9. Workplace benefits. Are you taking full advantage of the core and voluntary benefits to which you have access via your job? If your employer offers matching retirement plan contributions, are you taking advantage of them? Are there voluntary benefits you should be considering, such as discounted group life insurance or disability insurance? If you’re part of a high-deductible health plan, are you taking advantage of the tax-favored Health Savings Account that goes with it? If your employer offers an Employee Assistance Plan, are you tapping that resource?
    10. Key documents. Do you have a will in place and up-to-date, along with other important estate documents, such as powers of attorney and medical directives? Also, are beneficiary designations on insurance policies, retirement plans and bank accounts up-to-date?
    11. Support and guidance. Do you feel like you have a strong handle on all the key aspects of your financial life — basically, the 10 areas referenced above? Are there areas you’d like to address to improve your overall financial wellness? If so, you could benefit from the guidance, perspective and advice of a financial expert. Not only can working with a financial professional improve your financial wellness, it gets you an actual financial plan — a professionally authored plan detailing how to maintain your financial well-being over the long run.

    September 2018 — This column is provided by the Financial Planning Association® (FPA®) of Iowa, the principal professional organization for Certified Financial PlannerTM (CFP®) professionals. FPA seeks to elevate a profession that transforms lives through the power of financial planning. Through a collaborative effort to provide more than 23,000 members with tools and resources for professional education, business support, advocacy and community, FPA is the indispensable resource for CFP® professionals. Please credit FPA of Iowa if you use this column in whole or in part.

    The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION.  The marks may not be used without written permission from the Financial Planning Association.

     

    The Phases of Retirement and How to Prepare for Them

    Everyone has a unique vision for how their retirement will unfold — a story they want to write for themselves once they move to the next phase of life.

    “The story is different for each person,” observes FPA member Monica L. Dwyer, a CERTIFIED FINANCIAL PLANNER™ (CFP®) professional with Harvest Financial Advisors in West Chester, Ohio. “In the beginning, some grapple with not working. One client told me that it took him a full year before he could relax and enjoy the morning paper without feeling he had to be somewhere. Others slide right into retirement and have been waiting for it for so long that they are really ready.”

    However unique a person’s vision for the next phase of life may be, though, there is a common thread to peoples’ stories, a reality that it’s important to be aware of, and to plan for in advance: the likelihood that retirement will unfold in several distinct stages, each with its own set of circumstances, priorities, challenges and rewards.  According to U.S. government figures, a man reaching age 65 today can expect to live, on average, until age 84.3. For a woman turning 65 today, the average life expectancy is 86.6. What’s more, about one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95.

    Simple math suggests that for many people, retirement could last two or three decades — or more. By having a clear idea of what each stage of retirement might look like, people can take important planning steps in advance to position themselves to make the most of each stage.

    Phase One of retirement is often about the fun stuff: attacking the bucket list with travel, pursuing hobbies, maybe continuing to work for income and/or as a volunteer, activities with friends and family, and so on. This is frequently called the “go-go” phase of retirement.

    Unique planning considerations:

    • Get a clear picture of current household expenses — the demand side of the cash flow equation, including both hard (food, housing, transportation, utilities, etc.) and discretionary (dining out, travel, hobbies etc.). This action-focused stage may require additional discretionary, lifestyle expenses. In a financial planning context. Your investment and income drawdown strategy should reflect this potentially higher-priced lifestyle. Be sure to account for expenses that may escalate in retirement, such as for healthcare, perhaps more travel and the like, as well as expenses that may drop off, such as work-related expenses. Also be sure the estimate accounts for inflation. 
    • Once a person reaches their 60s, key decisions loom about when to draw, and how to maximize, Social Security benefits. Does a person need to start drawing Social Security income earlier, starting at age 62, or can they wait until 65 or even 70 to turn that spigot on? Waiting allows a person to earn valuable “delayed retirement credits” that increase their monthly benefit when they do start taking payments. Those credits are equal to an annual 8 percent raise in benefits.
    • Absent a workplace health insurance plan, move to fill the health coverage void. Just prior to turning 65, file for Medicare benefits, and determine what additional healthcare coverage you need, if any, to supplement the benefits that Medicare provides.
    • Determine how to tax-efficiently handle the required minimum distributions that must come out of qualified retirement plans [401(k)s, traditional IRAs, etc.] starting at age 70.5.
    • What about work? Do you want to keep working? Do you need to keep working? Among employed Baby Boomers, two-thirds plan to, or already are, working past age 65, or do not plan to retire at all, according to a study by Transamerica. There are substantial benefits to continuing to work, including continued income and access to workplace benefits.
    • Firm up with your spouse/partner your vision for the type of housing and care you want if one or both of you has a long-term health issue, and how you plan to pay for that vision, whether that means setting aside a pool of money to cover retirement healthcare expenses or investing in some type of long-term care insurance. Then discuss your vision with other family members to ensure they are on the same page.

     

    Phase Two of retirement usually brings a slow-down. A person may not be as game for adventure and activity, and could be more limited by health issues. As a result, maybe they’re spending less on discretionary, lifestyle-oriented pursuits, but spending more for health and medical care.

    Unique planning considerations:

    • Keep monitoring income supply and spending habits. Are your assets on track to last as long as you need them to?
    • Reassess how your assets — retirement accounts, investment portfolio, etc. — are allocated and adjust as necessary to ensure they are appropriately diversified and not too conservative or too risky for your age and circumstances.
    • Revisit and update your estate documents as necessary, ensuring that beneficiary and account information for investments, credit cards, retirement accounts, bank accounts, life insurance policies, Social Security and pension statements, real estate property, personal property and debts, along with estate documents like your will, powers of attorney and living will, are all readily accessible.
    • If you (and your spouse) plan to “age in place” — to remain in your home, at least foreseeably — does the home need to be updated to accommodate limited mobility? What will the update cost, and how will you pay for it?

     

    During Phase Three of retirement, people tend to get more sedentary as they deal with the realities that come with advanced age: mobility limitations, health issues and the like.

    Unique planning considerations:

    • Health concerns, mobility issues, concerns about home upkeep and other factors could dictate a move to a new housing situation, such as an assisted living facility that better accommodates the new realities of this phase of retirement.
    • Is it time to stop driving? If so, what transportation options are available to get you where you need to go, and how to cope with this loss of freedom?
    • Coping with the reality of losing your spouse/partner and living alone.
    • Healthcare expenses tend to mount. About 50 percent of a person’s lifetime healthcare costs will occur during the last six months of life, according to a report from TIAA-CREF.
    • If you plan to pass certain assets to loved ones and/or to an organization or cause you support, be sure those intentions are specified in writing in legally sound estate planning documents.

     

    July 2018 — This column is provided by the Financial Planning Association® (FPA®) of Iowa, the principal professional organization for Certified Financial PlannerTM (CFP®) professionals. FPA seeks to elevate a profession that transforms lives through the power of financial planning. Through a collaborative effort to provide more than 23,000 members with tools and resources for professional education, business support, advocacy and community, FPA is the indispensable resource for CFP® professionals. Please credit FPA of Iowa if you use this column in whole or in part.

    The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION.  The marks may not be used without written permission from the Financial Planning Association.