Time For Your Annual Financial Checkup

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StocksYou go for your annual physical checkups. Why not have a financial checkup. Taking stock of your finances, especially if you are in your forties and nearing retirement, is a necessity to having a healthy financial situation.



“You should review all of your assets annually. Securities such as stocks and mutual funds can be monitored monthly, weekly and daily,” says Dr. William Barbee, associate professor, Howard University School of Business.



Take a look, preferably with your financial advisor, at all of your assets. How are your stocks performing? How much have you saved for retirement? What do you need to add to your portfolio? Ask all the questions that are vital to a clear understanding of your acquired wealth–or lack thereof.



“If you are in your 40s, you should have real estate, stocks, mutual funds, closed end funds, and exchange funded funds,” says Barbee.

Haven’t thought about retirement? You are not alone. According to the U.S. Department of Labor, fewer than half of Americans have calculated how much they need to save for retirement. But don’t worry, says Barbee. “It is not too late to prepare for retirement. It is much better to prepare sooner rather than later since the benefits from the magic of compounding rise exponentially as the time horizon increases. Starting later and postponing your retirement reduces your investment time horizon and substantially reduces your wealth at retirement,” explains Barbee. “If you are starting later than the optimum time (which is as soon as possible), take advantage of the tax law that allows older people to increase the amount of money that they allocate to tax-advantaged investments and increase the tax-benefit they gain from these investments.”


So what sort of assets should you have in place to prepare for retirement? “Real estate,” says Barbee. “Currently the housing opportunity index is at a record high indicating that the affordability (relative to household income) of housing ownership is very high. And you will need a place to live when you retire. It can also be a source of future rental income.” Real estate is just one option. “You should also have stocks, mutual funds, closed end funds, exchange traded funds and tax-advantaged accounts such as IRAs, 403(b), 401(k), SEP, and SIMPLE,” advises Barbee. “With these accounts the government is financing part of your retirement program. Let the government be part of your retirement investments. If the government is allowing you to receive this money, take it.”

And, don’t forget to think about preparing for long-term disability. Be sure to review your employer-provided long-term disability policy. Go over with your financial adviser to see if you should add to the amount your employer is providing.

Now that you have your retirement and assets in place, you should also think about estate planning. And you don’t need to be wealthy to plan your estate. “Have life insurance. Shop carefully here with due diligence,” says Barbee. “Prepare and record a will. Create trusts for some people as well as transfer-on-death accounts for some people.”  Make a power of attorney and living will/medical directive.

Don’t put off your financial checkup. If you find you have a lot to prepare, start now. “Take advantage of the tax law that allows you to increase the amount of your tax-advantaged investments when you are older,” suggest Barbee. “Budget and involve your family in this process. Increase your income with a second job. Increase the amount you allocate to saving and investing.”