Last week we listed the first six steps in getting your financial house in order. Here’s the rest of the list to help you achieve financial health in 2012.

7) Build an emergency fund. There are always those expenses we can’t plan for like the roof needing repairs or the car breaking down and not all of these costs are covered by insurance. That’s why it’s so important to have some cash somewhere safe and accessible like a savings account or money market fund. Try to save at least 3- 6 months worth of necessary expenses in case you or your spouse were to lose your job. The riskier your income is, the more you should have in savings.

8 ) See if you can refinance your debt. One expense that no one likes to pay is interest. With rates near record lows, this can be a great time to see if you can consolidate student loans or refinance your mortgage to a low, fixed rate before rates eventually start moving up. If you were able to improve your credit score, you might also qualify for rates you weren’t able to in the past.

9) Pay down bad debt. There are some debts, like credit cards, that you generally can’t permanently refinance below what you can expect to earn by investing your money. In this case, your best bet is to try to pay them down aggressively by focusing all the extra payments on the balances with the highest interest rates. As one debt is paid off, you’d then apply those payments to the next highest interest rate debt.

10) Get on track for retirement. If your employer offers a retirement plan with a match, try to contribute at least enough to get that full match so you don’t leave any free money on the table. You should also be able to contribute the extra 2% of income from the recently extended payroll tax cut. Since it’s temporary, you don’t want to get used to spending it. After that, you can calculate how much more you need to save (especially after all the market turmoil over the last few years) with this retirement estimator. You can then get additional tax benefits by contributing more to your employer’s plan, a traditional IRA, and/or a Roth IRA. Don’t forget that you will be able to contribute more to your 401(k) next year and that you have until April 15th to contribute to IRAs for 2011.

11) Consider saving for education. Your kids can borrow for school but there’s no financial aid for retirement so that should be your first priority. But if your retirement needs are on track and you’d like to put some money away for future education expenses, look into various tax-advantaged vehicles like state 529 plans, Coverdell Education Savings Accounts, and U.S. savings bonds to see which best fits your needs.

12) Make sure your investment portfolio is properly diversified. In addition to saving money for retirement, education, and perhaps other goals, you’ll still need to decide how that money is invested. Rather than try to predict the market, you can use this risk tolerance questionnaire and asset allocation worksheet for guidelines on how much to invest in stocks, bonds, and cash based on how long the money will be invested for your goals and how comfortable you are with the ups and downs of the market. You would then re-balance your portfolio periodically to keep it in line with your strategy. This can also help you resist the temptation to buy stocks when they’re doing well (priced relatively high) and sell stocks when they’re doing poorly (priced relatively low).

There are quite a few steps here to choose from and not all of them will necessarily apply to you but taking even just one or two of these steps can help put you in a better financial position.

To see the whole article that includes some handy tracking tools go here.

Is getting your financial house in order one of your New Year’s resolutions? Along with losing weight and getting more exercise?  For many people, those three are high on their list of resolves. Just in time to help you achieve your goal of getting into better financial shape, here’s a handy checklist of twelve things that will make you financially healthier and give you more peace of mind.

1)  Set goals. As Stephen Covey put it in The Seven Habits of Highly Successful People, begin with the end in mind. After all, it’s hard to know how to get to where you want to be if you have no idea where that is. Take a break from the in-laws this holiday season and ask yourself what you really want, what steps you need to take to achieve those goals, when you’d take those steps, and what they would cost you. Most importantly, write it down to hold yourself accountable and make them more likely to actually happen.

2)  Plan your estate. Speaking of “the end,” this is a good place to start because we never know when we might need estate planning documents like an advance health care directive, durable power of attorney, and a will and/or living trust. These are also notoriously easy to procrastinate so it’s good to get them out of the way.

And planning your estate is not just about death and dying! It’s about protecting your future and your lifestyle, first and foremost.

3)  Check your credit. If you’re like most people, you’ve probably been using your credit cards all over the place for the last several weeks so keep an eye on your credit card statements for any purchases you didn’t make.

4)  See where your money is going. Now that you’ve thought about your hopes (and fears) for the future and gotten glimpse of your past through your credit report, this is where we see where you are now. Take a look at your last 3 months of bank and credit card statements then categorize your expenses on a worksheet to give you an average of your monthly expenses.

For special expenses like gifts and vacations, figure out how much you tend to spend on them per year and divide that number of 12. It’s a good idea to then set that much aside each month to cover those expenses as they arise.

5)  See where you can cut back. Once you know where your money is going, try to think of ways you can reduce some of your expenses to spend less than you earn every month and save for your goals. Ask yourself if there are ways of doing the same thing while spending less money. How about canceling the subscription to that magazine you never read? Can you bring lunch to work instead of eating out every day? Do you really need to drink Dunkin Donuts or Starbucks every morning?

6)  Make sure you have the right amount of insurance. You want to have enough disability insurance to cover your necessities and enough life insurance to provide for anyone dependent on your income. Don’t forget to check what you have available through you and your spouse’s employer. This is also a good time to examine your health and property and casualty insurance coverage too.

If you’re serious about getting your financial house in order, you’ll want to check out the original article, which includes some handy tracking tools here.

A couple of weeks ago I wrote about the results of several studies conducted recently on boomers about their idea of  “what’s next” as they head into the years traditionally called the “retirement years”.

Today I have some more fascinating results of the study.

Most Boomers Haven’t Saved Enough For Retirement

There are many exceptions of course, but on the whole, many boomers are worried about the fact that they haven’t saved much for retirement.

Twenty-seven percent of people in their 50’s say that raising their kids and paying for college is the biggest reason they haven’t saved much for retirement. That’s not surprising, given the typical middle income family spends more than $220,000 to raise a child, up 22% since 1960, according to data from the U.S.D.A.

Many parents consider paying for their child’s college education is part of the parent’s job of helping their child become successful in life so when you add $100,000 or more for college expenses, it’s no wonder that so many people don’t feel financially ready to retire. That why so many boomers say they’ll need to work until they’re eighty!

But is that realistic? There appears to be somewhat of a disconnect between what boomers think retirement will be like and what it actually is like. According to recent research done by the Robert Wood Johnson Foundation and the Harvard School of Public Health, only 13% of pre-retirees (people over 50 who have not yet retired) think their health will be significantly worse in retirement than it is now, while 39% of retirees report that it actually is worse.

Boomers may be a bit unrealistic on their finances too. While only 22% of pre-retirees think their financial situation will be worse in retirement, roughly one-third of retirees say that it is worse. Along those same lines, only 14% of “pre-retirees predict that life overall will be worse when they retire, but a quarter of retirees report that it actually is worse.

“There’s a real disconnect because your life pre-retirement is much different than your life post-retirement,” says Hal Hershfield, a professor at NYU who recently conducted a study entitled, Increasing Saving Behavior Through Age-Progressed Renderings of the Future Self.

Boomers Divorce Rate Has Doubled In the Past Twenty Years

Boomers are untying the knot at a record pace. The divorce rate for people over 50 has doubled in the past 20 years, says the National Center for Family and Marriage Research at Bowling Green State University, compared to a slight decrease in divorce overall.

More than 300,000 couples over 50 divorced in 2008, and if the rate continues to grow at current levels that number will jump to more than 400,000 in 2030. What’s fueling this trend? Empty nesters who find they are a lot less compatible when the kids aren’t around but they still love marriage. A lot of boomers are in their second, third or even fourth marriage, and these marriages are more likely to end in divorce, says Krista Kay Payne, a researcher at the National Center for Family and Marriage Research Center.

Divorce will likely take a chunk out of boomers already inadequate retirement funds. Lawyers’ fees, splitting retirement accounts, investments and other assets and selling the family home all lead to financial insecurity for many divorced singles.

Some of boomers’ current gloominess comes straight from the pocketbook. Fully 55% of boomers say that in the next year their income likely won’t keep up with their cost of living, compared to just 43% of older adults and 44% of younger ones. They are also more likely than younger people to say it’s harder to get ahead now (66% vs. 55%) as compared to 10 years ago, the Pew study found. “The anomaly here is that boomers are in their peak earning years,” Cohn writes. “As a group, they enjoy higher median household incomes than do younger or older adults.”

Boomers Health Is Threatened By Obesity

Nearly one out of every three people ages 50-59 is now considered obese, according to the Center for Disease Control, compared to less than one in every five for people age 18 to 29. And baby boomers are significantly fatter than their parents’ generation. Boomers are struggling to exercise enough to combat their expanding waistlines. But only one in four gets the amount of exercise experts recommend for staying healthy, according to a 2011 poll of nearly 1,500 adults by the Associated Press and LifeGoesStrong.com.

Obesity can lead to serious health problems including diabetes and heart disease. A 65-year-old person who has been obese since age 45 personally incurs roughly $50,000 more in uninsured Medicare costs than a normal weight 65-year old does, according to the National Center for Health Statistics. Medicare and Medicaid end up paying for roughly half of the cost of obesity, which was an estimated $147 billion in 2008, according to a study published in Health Affairs.

Happy New Year! I’m looking forward to seeing what 2012 brings us.

Is getting your financial house in order one of your New Year’s resolutions?

Here’s some reasons to stick to your resolve. This is a guest article about the benefits of having a financial plan instead of winging it. It was written by Roger Wohlner, a fee-only advisor in Chicago for a column he writes on financial topics.

A recent report by HSBC revealed the following:

• Americans with a financial plan have accumulated on average $127,000 in retirement savings vs. $56,000 for the average U.S. household. Non-planners have an average of around $23,000 saved.

• Almost 44% of those without a plan associate retirement with financial hardship, while this number is only 19% for those with a plan.

As a planner since the mid 1990s I’ve seen both sides of these numbers.

I recently spoke with a woman who was referred to me about her situation. She and her husband have lived a comfortable lifestyle, but now in their 70s they find themselves in a position where they have exhausted their assets and where their monthly expenses exceed their only source of income, Social Security. Unfortunately there was not much that I could suggest to her. Frankly this conversation should have occurred some 20 years ago.

On the other hand a long-time client couple retired to a warmer local several years ago. I told them that their financial prospects in retirement were good, but certainly no “slam dunk.” Through their frugal lifestyle and attention to what they spend we have been able to go several more years than I originally anticipated without having to tap into their retirement accounts. The husband starts required IRA distributions in 2012. We speak often and they value my advice on financial decisions. A recent example of this was whether or not refinancing their already affordable mortgage made sense. We determined that what the banker had proposed was not a good deal for them.

In a recent meeting with another client couple I was able to show them that their goal of the husband retiring in the next couple of years was very realistic and doable. In fact I showed them that he could retire now if he so desired. Again this is a function of their good financial habits and the planning we have done over the years.

A financial plan is a valuable tool in areas such as:

• Formulating and quantifying financial goals.
• Establishing reasonable assumptions and expectations for goals such as retirement.
• Quantifying the amount you will need to save to achieve your goals.
• Setting benchmarks to determine if you are on track toward your goals.
• Illustrating the ramifications of various financial decisions such as spending versus saving, or making a major purchase now using credit vs. saving for that purchase and deferring it.

Whether you do this yourself or hire a professional to help, a financial plan is a key element in achieving your financial goals.

You can read the article here.

Less than half of millionaire boomers say that leaving money for their kids is a priority for them, according to a new U. S. Trust study. Instead 64% of boomers say they plan to use their money to travel and more than one in three say they want to use it to “have fun.”

This is in contrast to boomers’ parents – the greatest generation. According to another study published by the Journal of Financial Planning, older retirees are seven times more likely than boomers to believe they owe their children an inheritance.

“But boomers are more concerned with leaving behind things like values and keepsakes,” says Katie Libbe, the vice president of consumer insights for Allianz Life, the company that conducted the survey.

Even boomers who do plan to leave an inheritance may do so with strings attached. Some parents have concerns about how their kids would invest and spend the money and only one-third of the parents in the U.S. Trust Study felt that their children will be able to handle an inheritance.

“Make room kids, we’ll be living with you when we’re old.”

Boomers are expected to live longer than any other generation. At the same time, it’s no secret they haven’t saved nearly enough for retirement. Overall, the average retirement savings shortfall for married baby boomers is about $30,000, according to the Employee Benefit Research Institute (EBRI).

Nearly half of early boomers, born between 1948 and 1954, and 44% of late boomers, born between 1955 and 1964, may not be able to afford even basic living expenses in retirement, according to EBRI. The result? Kids could be supporting mom and dad well into their eighties and nineties.

One of the biggest drains on boomer retirement savings will be health-care costs. Medicare pays for just over half of the health-care expenses that the typical elderly person will face, estimates EBRI. A couple that is 65 today will need nearly $300,000 to cover those costs.

If parents do move in, their kids should expect to spend an extra $6,000 and $10,000 annually on food, clothing and other basics according to Caring.com, a website devoted to helping caregivers. Add thousands more for big-ticket items like wheelchair ramps or home health-care aids. Expensive as that sounds, it’s still less than the $60,000 to $100,000 per year it would cost to move a parent into an Assisted Living Community.

Read the article here.

This entry was posted on Friday, December 23rd, 2011 at 4:00 pm and is filed under Baby Boomers, Elder Care, Estate Planning, Financial Planning, Health, Life Planning, Long Term Care, Retirement. You can follow any responses to this entry through the RSS 2.0 feed.