10 Financial Tips

Here at FedSavvy we want to kick off the new year by providing you with 10 Financial Tips that will help you start off the new year with a great financial plan. If you missed Carol on Good Morning Washington you can check back on January 2nd to see her discuss a few tips in detail!

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Financial Tip #6: Plan Long Term

Include long term care planning in your retirement strategy.

If you had an unplanned expense of $60,000 to $100,000 a year could your income support that during your retirement? A 70% chance that you can drain your finances and an emotional drain on your family. Imagine having a healthcare need and not having the funds available to pay for this care, thus relying on family to care for you. This can put such tension on a family and cause their health to decline as well.

Many people choose not to purchase a long term care policy because they can spend tens of thousands of dollars in premiums and then end of never using the policy, leaving all that money behind to the insurance company. Gaining more popularity are hybrid life/long term care plans that pay out a death benefit if you don’t use the policy for your long term care needs. Many plans build cash or refund your premium should you decide to cancel the policy.

Financial Tip #5: Find Income In the Right Places

Find income in the right places.

Our present low interest rate environment makes for a difficult time to be a conservative investor. Bank interest rates are very low and bond funds are very sensitive to rising interest rates. You may have to change your investment strategy and look to equities that pay dividends but be careful, the complexity in the markets today require advanced skills, which is where the need for professional active management fits in.

Adding a fixed indexed annuity allows you to participate in stock market performance without risk to your principal, and can work nicely as a bond replacement in this environment.

Financial Tip #4: Pay Taxes Now, While They’re Low

Recognize that taxes are very likely to go up in the future and add some tax efficient strategies to your retirement plan. Current tax rates are low. In the past the federal tax rate has been as high as 94%.

With our federal deficit over 18 trillion dollars and unfunded entitlement promises close to 100 trillion, where is the funding going to come from to get this in control? You can’t fix the deficit, Social Security, and Medicare, but you can be proactive and use tax efficient strategies to protect against the threat of higher taxes.

Do you contribute to a Roth IRA? Even better does your employer offer a Roth plan which would allow you to contribute $18,000 for 2016 and an additional $6,000 if you are age 50 or over.

Financial Tip #3: Invest In A Way That Is Right For You

Invest in a way that is appropriate for your objectives and your comfort level. I taught a class on the Thrift Savings Plan at the US Patent office in January 2014. Many of the participants were in high spirits because the S & P 500 index had finished 2013 with an increase of 32%.

At the end of the class a woman came up to me and showed me her statement. She was invested 100% in the Government Fund (G), which guarantees not to lose principal. The G funds annual return for 2013 was 1.89%. My comment to this woman was that if she was not comfortable with any risk and was able to reach her goals with this rate of return, then she was doing very well.

The point is that you have to manage your investments for growth as well as risk. It is very important to know your comfort level and allocate your investments accordingly. The best way to do that is have a thorough review of your investments and determine if you have too much or too little at risk based on your risk tolerance. We have a simple risk questionnaire that we can email to you.

Click here to request the Riskalyze questionnaire.