4 Tips for Evaluating Your Financial Wellbeing and Moving Forward


by Adam Taggart, CEO and Founder of Wealth

How long has it been since you assessed your financial picture and updated your plans to reflect changes in the economic and political landscape? With inflation, high-interest rates, job losses, and failing banks filling the headlines, it’s easy to avoid turning to our financial future and run on autopilot, allowing our current financial habits to continue unabated. A “set it and forget it” mentality may help those who are overly reactive to market fluctuations, but it can also make many of us complacent. If you’ve created a sound financial plan but want to make sure you’re following through, this article will provide four tips to encourage action and jump-start your finances.

Tip #1 – Policy-proof your retirement plans

Did you initially plan your retirement savings based on calculations that included the amount you expected to receive from Social Security? Have you envisioned Medicare to replace your employer-sponsored health care at a similar cost? You may want to write those entitlements into your plans. Social Security and Medicare trusts expected to go bankrupt Inside next decade,

Does this mean that these programs will end when you retire? Probably not. Congress will likely act to ensure that the program remains viable, but benefits may be cut, and your age for benefits may increase.

If you can completely remove these programs from your retirement plans, you’ll be better prepared. Eliminate the risk that policy changes amid demographic pressures deprive you of the ability to retire on your own terms. Plan for the worst, but if the programs survive, the better – you’ll have more discretionary income in retirement.

If you can’t raise your retirement contribution rate enough to make the numbers work now, you may still be able to reduce your reliance on Social Security. Start by planning to delay your benefits until age 70, when the amount you’ll receive from Social Security runs out.

For a full exploration of the factors to consider when taking Social Security, watch our interview with benefits expert Mary Beth Franklin below (or visit Here to watch on YouTube).

Unlike Social Security benefits, you’ll want to apply for Medicare as soon as you’re eligible (coverage costs increase with age). However, Medicare coverage at its current levels may not be enough to cover all of your medical costs. Any further reduction in benefits could leave you on the hook for covering hundreds of thousands in medical bills in retirement. At a minimum, plan to pay for Medigap or supplemental insurance. Building up savings in a health savings account specifically for medical costs may be another option for setting aside tax-deferred dollars (though the investment options in HSAs may be limited compared to IRAs). Long-term care insurance should also be considered when policy-proofing your retirement plans.

Tip #2 – Increase your investment potential

Smart investors insist on investing in what they know. But this is not an invitation to ignore a huge world of profitable investments. It doesn’t matter what age or stage in life you are in, you are capable of expanding your financial knowledge base. Adding to your investing skill set can help you protect the assets you’ve already accumulated, while using those assets in new ways can help you grow further.

Often, individuals begin investing in a target retirement fund or a basket of mutual funds or ETFs. As your nest egg grows, you can begin to hold a basket of individual stocks — typically blue chip stocks from American companies and correctly embrace a long-term investing philosophy.

incremental portfolio income

If you want to get ahead as an investor, however, it may be time to find a few more opportunities and learn different strategies for generating income. For example, if you have accumulated a basket of stocks, you can generate additional income through options trading or securities lending.

If you are new to options trading, it may seem risky, and there is risk in options strategies. But some options strategies actually reduce some of the risk. Options can dial in a more specific risk/return profile across our portfolios. To get started, talk with your professional financial advisor to see if the strategy of writing covered calls on blue chip stocks in your portfolio could be a way to generate some income without taking on undue risk.

Securities lending allows investors to loan securities and earn passive income. The types of stocks and bonds that can be loaned depend on the demand for the individual security. Check with your broker to see if debt securities are an option for you.

expanding horizon

Many investors embrace the relative safety of US stocks, often relying on the company names we know. But some of the opportunities with the highest growth potential are in the U.S. are found outside. Global economic trends and a mature financial sector may favor investors familiar with Mexico, Brazil, Colombia and other Latin American markets.

Investors can get exposure to emerging and frontier markets through mutual funds and ETFs, which are perfectly suitable investments to start with. Once you become familiar with a market and its opportunities and risks, you can gain direct exposure to emerging market companies by investing in American Depository Receipts (ADRs), which trade like stocks on US exchanges.

Tip #3 – Cover Your Assets

Our insurance coverage needs to change with the times, but we rarely update our policies to reflect our current circumstances. If you haven’t checked your insurance coverage and costs in a while, it’s time to re-evaluate your needs. Start with your risks – What are the risks related to your health, home, car, income and portfolio?

If you already have insurance coverage, review your policies to make sure they still meet your risk tolerance. You may need to adjust your coverage levels or add additional types of insurance to make sure you are adequately protected. You may find coverage you no longer need and you can eliminate.

Homeowners insurance is a policy that is often overlooked. Review your coverage level regularly and shop around to make sure you’re paying a competitive price. Compare insurance policies from different providers to find the best coverage and rates for your needs. If your net worth has increased, consider whether you can afford the higher deductible now.

You may also want to re-evaluate your life insurance needs as your children grow and your expenses change.

Always consider the reputation of the insurance company when looking for insurance savings. If you need insurance and a less-than-reliable insurance company is slow to pay or difficult to work with in your time of crisis, a lousy-cheap premium could cost you more.

cash asset cover

The recent bank failures show how fragile our so-called safe havens really are. In this latest crisis, some major banks such as Charles Schwab experienced significant scrutiny and declining share prices, sparking widespread concern over the banking sector.

It’s scary to think that our cash savings could be at risk. One option to ease our worries is to keep some of our cash in brokerage accounts instead of in banks. Brokerage securities are segregated from bank assets, so the money is not susceptible to runs similar to bank deposits. Also, brokerage accounts will often use money market sweep features, meaning our cash can earn much more than what is deposited in a bank account. In case of failure of the brokerage firm, brokerage accounts are insured by SIPC (up to $500,000 for securities and $250,000 for cash).

Tip #4 – Get Tough on Taxes

Death and taxes, goes the cliché, that’s all certain. If you have doubts about the certainty that taxes will reduce your income, a study by the financial firm Self calculates that the average American will spend about a third of his or her lifetime income on taxes.

While reducing your tax bill each year is beneficial, it may be more important to consider your lifetime tax liability if you want to move forward. Instead of investing exclusively in a traditional IRA or 401(k), consider putting at least some money in a Roth option to reduce your risk of higher tax rates in retirement. If you think you’ll make more money in the future, it’s worth exploring the option of converting your traditional IRA assets to a Roth IRA – you’ll pay taxes on the conversion now, but it could save on taxes in the future. When you are in a higher tax bracket.

Saving taxes on our investments doesn’t end with maximizing our tax-deferred savings. Nothing can erode strong shareholder capital appreciation faster than government policy (think the recent energy windfall taxes in Europe). When evaluating investments, consider the constraints imposed by taxes for the company, industry or country.

For an eye-opening discussion on all the ways an active tax planning approach can dramatically reduce your tax footprint, see this interview With accounting expert Tom Wheelwright.

investing in our financial literacy

If you want to move ahead financially, don’t rely on the status quo. Incremental improvements in financial planning require learning new skills. If you have reached a stagnant situation or need help taking the next step, don’t hesitate to seek the help of a financial advisor.

The views and opinions expressed here are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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