Taking a retirement fiscal physical
As you go through life and take care of your finances, it is important that you do a yearly evaluation, this is especially important for your retirement accounts. Your financial situation changes every year, your needs change, and your plan should change as well. So, give yourself a fiscal physical each year, just as you would a medical physical. This will help you determine if your retirement is going to last, and how you can live on it. When discussing your finances with your financial advisor, and doing your retirement fiscal physical, consider the following four areas:
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1. Your cash flow. How is your cash flow? Compare your monthly expenses to your monthly income. Determine what your monthly needs are, and whether you are covering them with your pension, social security, and retirement savings. Determine if you are overspending your retirement, and whether or not you are going to run out of money before you die. If you are, then it is important that you find ways to improve your cash flow. For example, you may want to move into a less expensive area, or get rid of an extra vehicle etc.
2. Manage your risks. This is where you and your advisor should look over your various insurance plans. Insurance is the way you manage your risks, and protect your assets so that you can retire in peace. So, evaluate your auto, home, life, personal liability, health, disability, and other similar insurances. The cost of maintaining your insurance can be high, but the cost of not having them may be a lot higher. So, it is important to work with your advisor to get the right amounts, and adjust them in the ways that are needed to ensure you have the right coverage but aren't putting too much of a strain or drain on your finances. This will help you determine if you can afford private health insurance, or long term care insurance, etc.
3. Retirement goal evaluation. At this point you want to ask yourself if you are living the way you hoped to when you retire. Look at your investments, and discuss any changes you may want to make in order to keep your retirement on track, and where you want it to be. In addition to evaluating your investments, and whether or not they are on your path, you may also want to consider whether or not you are able to do anything extra, like vacation homes, college accounts for grandkids, or extensive travel.
4. Estate planning. Every year it is important that you evaluate your legal documents and determine if they still properly protect your estate and financial health. In other words, you need things like a will, living will, power of attorney, etc. Additionally, you want to make sure that you are passing your estate to your heirs in the best way possible with the fewest tax ramifications possible.
Always remember to let your financial planner know any life changes, or events that have occurred that might affect your financial position.
