Retirement Planning

CUSTOMIZE YOUR BUDGET
Remember to pay yourself first. Be sure to have three things within your budget: how much you’re taking in after taxes, how much you’re spending, and how much you’re saving.

If you’re not sure where your money is going, track spending using a spreadsheet or an online budgeting app for 60 days. Determine how much money you need to cover your fixed monthly expenses and how much you’d like to put away for other goals such as retirement. The rule of thumb is to save 10–15 percent of pre-tax income, including any employer match, starting in your 20s for retirement. If you delay, add about 10 percent for every decade missed. Review your emergency funds and have four to six months’ worth of essential living expenses set aside in a savings vehicle.

MANAGE YOUR DEBT
For most people, some debt level is a practical necessity; however, problems arise when debt becomes the master, not the other way around. To stay in charge, keep your total debt load manageable. Don’t confuse what you can borrow with what you should borrow.

Keep the monthly costs of owning a home (principal, interest, taxes, and insurance) below 28 percent of your pre-tax income and your total monthly debt below 36 percent of your pre-tax income. Eliminate high-cost, non-deductible consumer debt, and avoid borrowing to purchase depreciating assets. Try to pay off credit card debt and consider merging your debt into a low-rate Home Equity Loan or Line of Credit (HELOC).

OPTIMIZE YOUR PORTFOLIO
We all share the goal of achieving better investment results. Create a written plan that will help you stay disciplined in all kinds of markets. Focus foremost on your overall investment mix.

After committing to a savings plan, how you invest is your next important decision. Have a targeted asset allocation—that is, the overall mix of stocks, bonds, and cash in your portfolio. Make sure it’s still in sync with your long-term objectives, risk tolerance, and time horizon.

Diversification can help reduce risk and be a critical factor in reaching your goals but consider taxes. Place relatively tax-efficient investments, like ETFs and municipal bonds, in taxable accounts, and put relatively tax-inefficient assets, like mutual funds and Real Estate Investment Trusts (REITS) in tax-advantaged accounts. Tax-advantaged accounts include retirement accounts, such as a Traditional or Roth Individual Retirement Account (IRA). If you trade frequently, do so in tax-advantaged versions to help reduce your tax bill.

PROTECT YOUR ESTATE 
An estate plan may seem like something only for the wealthy, but there are simple steps everyone should take, especially after a year we just went through. Without proper beneficiary designations, a will, and other essential measures, attorneys, probate courts, and tax agencies may decide the fate of your estate or minor. Review your beneficiaries, especially for retirement accounts, annuities, and life insurance.

The beneficiary designation is your first line of defense. Therefore, keep information on beneficiaries up-to-date to ensure the proceeds of life insurance policies and retirement accounts are consistent with your wishes, your will, and other documents. Update or prepare your will and remember that it isn’t just about transferring assets. It can provide for your dependents’ support and care and help you avoid the costs and delays associated with dying without one (intestate). We recommend working with an experienced lawyer or estate planning attorney.

If your estate is large and complex and you want to spell out how your estate should be used in detail, consider a revocable living trust. The cost for a revocable living trust is typically more expensive.

Next, have in place durable powers of attorney for health care or patient advocate assignments. In these documents, appoint trusted and competent individuals to decide on your behalf if you become incapacitated. Make sure they understand your medical wishes. Lastly, take care of important estate documents.

Remember, you don’t have to do everything at once. There’s a lot you can do to improve your financial health. Take one step at a time and continuously make minor improvements throughout the year

For more information on Albert Lalonde, visit the kaizenfinancialgroup.com.