Make this Independence Day about more than just fireworks and barbeque, take time this holiday to make a plan for your personal independence and financial freedom. Personal financial freedom means different things to different people. Maybe your goal is to be free from work altogether or semi-retire, break free from debt, sell your business or achieve peace of mind regarding your family’s financial future.
Thinking about retirement? Maybe you might enjoy consulting, teaching or volunteering. Not ready to sell your business yet? Maybe you need to take more leisure time with family, travel or just have more fun with a favorite hobby. America did not achieve its independence overnight, and accordingly, you need to start planning for your retirement date well in advance.
No matter what your age, promise yourself and your family this July 4th to take these steps to achieve financial independence:
1) Define Your Retirement Goals. Do a lifestyle assessment: Where would you live? How would you spend your time? What activities might appeal to you?
2) Put A Price Tag To It And Make A Budget. Look at your bank and credit card statements, other debts, and record your current expenses. Think about how those expenses might change in the future, and be sure to factor in things like health care costs. Medicare and other health insurance plans don’t generally cover long term care. Medicaid does, but it requires you to spend down practically all of your assets to qualify.
3) Add Up Your Income And Assets. In addition to your estimated retirement income, you’ll need to gather the value of all your retirement savings, what you’re expected to get from any pension accounts and social security payments. Got investments? Add that income as well or consider the benefits (and tax consequences) of selling some assets to support your future lifestyle.
4) Analyze Your Savings. If your savings rate is on track, figure out how much more you need to save (or spend less). If your savings fall short, you may need to adjust your retirement age, or realign income goals. Reducing expenses now not only means saving more but also needing less when retired. Look at your employer-sponsored retirement plans and have your contributions increased. This is a powerful way to build wealth over time. See below.
5) Revisit Tax-Advantaged Retirement Accounts. Contribute to an IRA. If your employer offers a match, contribute enough to the 401(k) plan to get the full match. Don’t leave free money on the table. If you’re eligible for an HSA (health savings account), max that out next because the money goes in tax-free and can be used tax-free for future qualified health care expenses.
6) Make Sure Your Investments Are Tax Advantaged. Take a look at fees and expenses, diversity and risk. Make sure your goals are aligned with what’s in your portfolio. Check your portfolio at least annually, and adjust the allocations as necessary. You may want to be more conservative as your timeline and retirement horizon shortens.
7) Consider Business Exit Planning. Estate planning is not enough to protect your family’s financial future. Exit Planning is an important investment in the future – over time it will increase the value of your business and result in tax savings. It interfaces with the business owner’s objectives, current and future lifestyle analysis, as well as both business and personal financial resources. The objective is to maintain control of the exit process to reduce risk, get maximum value for your life’s work, yet minimize the tax dollars paid to Uncle Sam.
Other Considerations: Be aware that many people are forced to retire earlier than they planned due to health issues or loss of their employment. Keep the inflation rate in mind as you go through these steps, and assume a life expectancy of at least 90 years old. Remember your investment returns may vary based on whether you’re being a conservative or aggressive investor.
Seem like a lot to think about? These are just the first few steps to take today to guarantee your financial wellness tomorrow. If you need help with any of the issues above, contact your Fuoco Group professional advisors for assistance and answers toll free at 855-534-2727. America didn’t have such an easy time declaring its independence either, but that’s why we celebrate with fireworks on the 4th!
