PLANNING FOR RETIREMENT

1. MAXIMIZE YOUR RETIREMENT CONTRIBUTIONS.

As you reach a point in your career when you have a significant amount of extra income, it's important to take full advantage of the opportunity to invest for retirement in tax advantaged accounts. Maximize the contributions that you make into your company 401(k) and your own IRA (if eligible).

2. BE TAX EFFICIENT.

Your income tax bracket is probably higher now than when you started making money, so it's important to consider the tax implications of your investments. Contributions into retirement accounts have built-in tax advantages, but at this point in your life the IRS, depending on your income, may limit you. Even maxing out contributions into retirement plans, you still may need to save money in a non-retirement account to ensure that your nest egg is large enough. Tax efficient investment strategies can help to reduce the impact of taxation on your taxable investments.

3. CHILDREN ARE NOT DEFINED BY THE COLLEGE THEY ATTEND.

If you have kids and aren't able to completely fund an education at their top pick, consider two years at a community college as a possible compromise. Remember, taking on debt to fund college is a very risky endeavor. For students, there is no guarantee that the burden of (endless) debt payments will be offset by higher income. As parents, it can be tempting to forgo saving for retirement to make tuition payments, but this can have a serious impact on retirement readiness. Also, co-signing a student loan can be very risky and frankly I would advise against it. If you choose to ignore this advice, at least purchase a term life insurance policy on your child's life in the amount of the loan.

4. KEEP YOUR FINANCES AS SIMPLE AS POSSIBLE.

Keep your money with as few institutions as possible. The idea of spreading out your eggs into multiple baskets might seem like a good idea, but in reality your investments can be fully diversified and still kept with one custodian. I generally recommend keeping a checking and savings account at one bank and keeping your investments with a different, reputable investment custodian. This will make tracking your finances simpler and lower the chances of identity theft.

Need to simplify your existing portfolio, I can show you how.

5. DON'T BE AFRAID OF THE STOCK MARKET.

Stocks are volatile investments. Every few years there is bound to be a market correction and a significant drop. However, this volatility comes along with long-term growth. So, for your long-term goals, the stock market is an essential tool for growing your nest egg. A diversified global portfolio of large, mid, and small sized companies will provide the maximum investment return for the amount of risk taken. As you age, more of your money can be moved into less risky assets such as bonds, limiting your downside risk.

6. HAVE AN ESTATE PLAN.

At this point in your life, it makes sense to have an estate plan in place that includes a will, powers of attorney for finance / healthcare decisions, and an advance medical directive to instruct caregivers how to handle a situation where you may be incapacitated with no chance of recovery. In some situations, it may make sense to have trusts drafted for the benefit of certain family members who should not be managing money themselves.

7. CONSIDER LONG-TERM CARE INSURANCE NOW.

Long-term care insurance is very expensive. Individuals must consider whether the need to protect their estate is worth the expense. For some people, it makes more sense to save a little bit more and self-insure. For others who are less risk tolerant, an insurance policy makes sense. Either way, it's best to make the decision while you are in your 40's or 50's at the latest, before the price skyrockets. (Note: I don't sell insurance.)

8. CONSIDER WORKING WITH A PROFESSIONAL INVESTMENT ADVISOR.

With modern technology and the internet, it is certainly possible for any individual investor to construct an excellent portfolios of stocks and bonds at a low cost by themselves. However, for many people it makes sense to start a relationship with a professional advisor who can manage the portfolio and help implement a financial plan based on life goals. Many financial advisors can also help you coordinate with your accountant, attorney, realtor, and insurance agent on all financial issues. Modern technology has also made it easier for advisors to help more people and offer services to investors remotely across the entire country. I am always excited to start new relationships!


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Middleton Advisory LLC is a Maryland Registered Investment Advisor. No part of this page is meant as tax or legal advice.
Investments which are not FDIC insured involve the risk of losing principle.