When you reach fifty, if you are like many others your age, you look at things a little differently. You are now on the downside of life. You likely have more years behind you than ahead of you. Retirement, which at one time seemed so far away, looms much closer. You have been planning for your retirement for years. Is there something you should be doing differently than you have already been doing?
Update your estate plan. If you are like 70% of the people in Michigan, you have done no estate planning. At a minimum, you should have financial and healthcare powers of attorney and a will. Many people would also benefit from a trust. Once you have an estate plan in place, don’t be like most people with estate plans and update it once every twenty years. You should be reviewing your plan annually.
Just like you should have an annual health check-up, you should have an annual estate plan check-up. There are changes in your personal and family situations such as births, deaths, marriages and divorces. There are also changes in your financial situation like job changes or investment value changes. The folks in Lansing and Washington like to make tax and non-tax law changes most of the time. And your estate planning attorney has gained another year of learning and experience. Most of our clients for whom we prepare trust based estate plans elect one of our annual update programs.
Diversify your Portfolio. When you are younger, you have the benefit of time and you can be more aggressive with your portfolio. Because of the length of time before retirement, you can focus more on growth and overall return, rather than on income and security of principal. As you pass 50 and are nearing retirement, your focus flip-flops toward income and security of principal.
Studies have shown that so long as you have a variety of securities, asset allocation between equities and fixed income instruments is responsible for more than 90% of the return on your portfolio. The stocks or bonds in which you invest or choice of financial advisor play minor roles.
Using the Rule of 100 is a frequently recommended asset allocation method that can maximize returns, yet still protect your principal. As you near retirement, your age as a percentage of your portfolio should be invested in cash and fixed income instruments and 100 minus your age would be invested in stocks. For example, at age 62, you would have 62% of your portfolio in cash and fixed income securities and 38% in equities.
Investigate long-term care (“LTC”) insurance. When you are in you fifties and relatively healthy, costs for LTC insurance would be significantly less than if you would purchase it in your sixties or seventies. Get a few quotes and make sure you are comparing apples with apples. Some LTC policies only cover nursing home care, while others cover home care and/or care in assisted living facilities or adult foster care homes. Is there a maximum daily benefit, maximum benefit period and/or maximum lifetime benefit?
Explore conversion of term life insurance. If you have a need for life insurance in your retirement, see if you can convert any of your term life insurance policies into permanent policies. With the conversion, you typically lock in your premium for the rest of your life, whereas the term policy rates can increase. And the longer you wait, the higher the premium will be on your permanent policy.
You cannot just set everything up and then let it just set. Have an annual check-up
By: Matthew M. Wallace CPA, JD
Published edited November-December, 2013 in Savvy magazine as: Four financial goals at 50 and beyond