Taking Stock

Money Report

A financial checkup is in order after hitting the Big 5-0.

Taking StockBy the time you’ve reached your fifth decade you are hopefully well established, enjoying a lifetime of strong personal and family connections and a measure of financial security.

However, your confidence and your expectations for the future may have been severely impacted by the damaging recession of the past year and the ensuing financial meltdown.

You may be affected by depreciated values of your home and other real estate you own. If you’re still working, your job security may be in jeopardy at the worst possible time. If you’re retired, the reliability of your future income projections may be in doubt as the result of investment losses.

Here are some financial and investment strategies that are worth exploring, even in this challenging environment:

First, keep current events in perspective. Be sure you’re not spending time worrying about things you have no control over, and neglecting the things you do. Become more knowledgeable about our economy, its size and diversity; these things have helped us grow and prosper as we have worked through previous economic slowdowns. Be aware of how financial setbacks can affect your relationship with your family and loved ones. Tough times usually bring out the best in people, but can also add to stress. According to a recent Paypal survey, 43 percent of couples say this recession has caused them to argue more frequently over money, and more than 28 percent of couples have hidden purchases from their partners over the last year.

If you are nearing retirement the current financial problems bring additional concerns. You may need to make important decisions in this turbulent environment regarding benefit packages, pension payouts, and company-provided life insurance and healthcare benefits. Strong relationships with investment and financial advisors are often formed in this period; many of these decisions are complex and cannot be changed. It may be necessary to reevaluate retirement plans made pre 2008, to be sure your assumptions still hold true. You should now be in your peak earning years; try to contribute the maximum to your 401(k) s and IRAs.

Review your investment plan and asset mix. Look to balance your investment allocation among stocks, bonds, and cash and other assets in a way consistent with your tolerance for risk, your time horizon, and your need for future returns.

Position your portfolio for the eventual recovery of the markets and the economy; while stock investment has been punishing for investors over the last 15 months, you may be better off making your plans based on where we are likely to go, rather than where we have been. It’s difficult to embrace the investment classes that have done so poorly, but they may hold out the best hope for recovery.

Be sure you continue to pay attention to the fundamentals of investment practice, including low cost investments, broad diversification, and a written investment plan.

Income issues may be more of a consideration. Most in retirement depend on a combination of Social Security, investment income, and possibly a pension. If investments are to provide a significant proportion of income, asset allocation and a coherent investment strategy are of paramount importance. Now is the time to have an income projection done, or redone. Now may be the time to learn more about bonds and fixed income investments. Review what would happen to pensions and social security if either spouse died. If the future seems uncertain there are many things you can do to avoid or mitigate a shortfall. It’s a lot more enjoyable to start a second career early in retirement, than to wait till later on and find out you need to work to make ends meet.

Helping your children. This is an employment driven recession and a lot of the pain is being felt by those working, often our children and grandchildren. Previously independent kids may need short term help and find it easier to ask a parent then go to already thin credit markets for loans. Be generous if you can, but be realistic about your situation as well. It’s sad, but nearly 14 percent of loans to family members go into default, versus less than 3 percent of consumer loans to the general public.

If the amounts are substantial you may want to consider a written agreement or even a third party to handle details. Also, remember there are tax implications for loans to family members, whether you choose to charge interest or not.

Put your estate in order. Know what you own and what you owe. Take some time to update a simple spreadsheet with your assets, liabilities and net worth. Be sure your spouse knows where investments and important documents are located.

The mortality rates of men increase dramatically in these years; many women become widows, many will remarry, and many will inherit significant wealth and the responsibility of managing it for themselves and their families. Review your will or trust; you may have experienced changes in your life that need to be reflected in estate plans. If you haven’t already done so go to an attorney, and have wills, powers of attorney and health care documents drawn up. Use a simple system like the Red Folder to organize all pertinent personal documents.

Steven Weber, Gigi Harris, and Elizabeth Loda, CFP, are advisors and staff of The Bedminster Group. The Bedminster Group provides fee-only investment, estate and financial planning services. The information contained herein was obtained from sources considered reliable. Their accuracy cannot be guaranteed. The opinions expressed are solely those of the authors and do not necessarily reflect those from any other source. Mutual funds are offered by prospectus only, and discussion of investments should not be taken as a recommendation to buy or sell any investment.