Happy New Year!

LRPC’s Monday Morning Minute for this week, “Get Your Finances In Shape For The New Year” (presented below) comes to you courtesy of Schwab. As an independent, objective Registered Investment Advisory firm, Lawton Retirement Plan Consultants, LLC has access to research from many sources. Be assured that I will share enlightening, useful information with you each week. If you are short on time, make sure you take a look at each heading.

Start the new year off right by organizing your finances. This piece from Schwab provides guidance on what to focus on as you begin your 2017 financial planning.

Have a wonderful week!


Get Your Finances In Shape For The New Year

By Rande Spiegelman, Charles Schwab & Co., Inc.

Key points

  • The New Year is a great time to reevaluate where you stand financially.
  • Consider these five resolutions as you start your 2017 financial planning. They include tips on budgeting, estate planning and more.

It wouldn’t be the New Year without resolutions. But whether it’s trimming your waistline or firming your financial profile, the key isn’t making the list, it’s sticking with it. Here are five steps to get you started on your 2017 financial planning road to financial fitness.

Resolution #1: Create a budget for life

Financially speaking, life can be viewed as a series of cash inflows and outflows. Saving and investing during your working years should hopefully lead to a rising net worth over time, enabling you to achieve many of life’s most important goals. Creating your own budget and net worth statement can help you build your road map and stay on track, even during tough times.

Create a budget and pay yourself first

If you’re not sure where your money is going, track your spending using a spreadsheet or an online budgeting tool for 30 days. Determine how much money you need to cover your fixed monthly expenses, such as your mortgage and car payment, and how much you’d like to put away for retirement. Our rule of thumb is to save 10–15% of pre-tax income starting in your 20s and add 10% for every decade you delay saving for retirement.

Calculate your personal net worth annually

It doesn’t have to be complicated. Make a list of your assets (what you own) and subtract your liabilities (what you owe) to determine your personal net worth. Don’t panic if your net worth declines during tough market periods—such declines are usually temporary, and what’s important is to see a general upward trend over your peak earning years. If you’re retired, you’ll want to plan a drawdown strategy to make your money last as long as necessary.

Project the cost of essential big-ticket items

If you have a big expense in the near-term, like college tuition or roof repair, increase your savings and treat that money as spent. Keep it in relatively liquid, relatively safe investments like short-term certificates of deposit (CDs), a savings account, or money market funds.  If you choose to invest in a CD, make sure the term ends by the time you need the cash.

Retired? Invest your living expense money conservatively

Consider keeping 12 months of living expenses in short-term CDs, an interest-bearing savings account, or a money market fund. Then keep another one to four years’ worth of spending laddered in short-term bonds as part of your portfolio’s fixed income allocation.

Prepare for emergencies

If you aren’t yet retired, consider having an emergency fund with three to six months’ worth of essential living expenses in a savings account or money market fund. That way, you can avoid having to sell when the market’s down or incurring penalties by withdrawing from tax-deferred accounts.

Resolution #2: Manage your debt

Debt is neither inherently good nor bad — it is simply a tool. For most people, some level of debt is a practical necessity. That said, problems arise when debt becomes the master of the borrower, not the other way around. Here’s how 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% of your pre-tax income and your total monthly debt payments (including credit cards, auto loans, and mortgage payments) below 36% of your pre-tax income.

Eliminate high-cost, nondeductible consumer debt

Try to pay off credit card debt and avoid borrowing to buy depreciating assets, such as cars. You should also consider consolidating your debt in a low-rate home equity loan or line of credit (HELOC), which can be tax-deductible — but only if you can control the debt and not put your home equity at risk.

Match repayment terms to your time horizons

If you’re likely to move within five to seven years consider a shorter-maturity loan or an adjustable-rate mortgage (ARM). This is an option as long as you can live with upward mortgage payment resets if your plans change. But don’t borrow assuming your home will automatically increase in value. Historically, long-term home appreciation has significantly lagged the total return of a diversified stock portfolio.

#3: Optimize your portfolio

We all share the goal of getting better investment results. So create a plan that will help you stay disciplined in all kinds of markets. Follow your plan and adjust it as needed. Here’s how you can stay focused on your goals.

Focus first and foremost on your overall investment mix

Revisit your asset allocation, the overall mix of stocks, bonds and cash in your portfolio. Make sure it’s still in sync with your long-term goals, risk tolerance and time frame.

Diversify across and within asset classes

Diversification reduces risks and is a critical factor in helping you reach your goals. Mutual funds and exchange-traded funds (ETFs) are great ways to own a diversified basket of securities in just about any asset class.

Consider taxes

Place relatively tax-efficient investments, like ETFs and municipal bonds, in taxable accounts and relatively tax-inefficient investments, like mutual funds and real estate investment trusts (REITs), in tax-advantaged accounts.

Monitor and rebalance your portfolio as needed

Evaluate your portfolio’s performance at least twice a year using the right benchmarks. Remember, the long-term progress that you make toward your goals is more important than short-term portfolio performance.

Resolution #4: Prepare for the unexpected

Risk is a fact of life. Your financial life can be upended by all kinds of nasty surprises—an illness, job loss, disability, death, natural disasters or lawsuits. If you don’t have enough assets to self-insure against major risks, resolve to get your insurance in shape. The following guidelines could help you prepare for any of life’s unexpected moments.

Protect against large medical expenses with health insurance

Select a health insurance policy that matches your needs in areas such as coverage, deductibles, co-payments and choice of medical providers.

Purchase life insurance only if necessary

First, take advantage of the policy offered by your employer. If you have minor children or you have large liabilities that will continue after your death for which you can’t self-insure, you may need additional life insurance. Consider purchasing a low-cost term life policy rather than a whole life policy and invest the rest yourself.

Protect your earning power with long-term disability insurance

The odds of becoming disabled are greater than the odds of dying young. According to the National Association of Insurance Commissioners, at age 32, the chance of being disabled for 90 days is 6.5 times greater than the chance of death. If you can’t get adequate short- and long-term coverage through work, consider an individual policy.

Protect your physical assets with property-casualty insurance

Check your homeowner’s and auto policies to make sure your coverage and deductibles are still right for you.

Obtain additional liability coverage if needed

A personal liability “umbrella” policy is a cost-effective way to increase your liability coverage by $1 million or more, in case you’re at fault in an accident or someone is injured on your property. Umbrella policies don’t cover business-related liabilities, so make sure your business is also properly insured.

Consider the pros and cons of long-term-care insurance

About 59% of people over 65 don’t spend any time in a nursing home, but for those who do, the average stay is approximately 2½ years. Look for a policy that provides the right type of care and is guaranteed renewable with locked-in premium rates. You can get independent sources of information from your state insurance commissioner.

Create a disaster plan for your safety and peace of mind

Review your homeowner’s or renter’s policy to see what’s covered and what’s not. Talk to your agent about flood or earthquake insurance if either is a concern for your area. Keep an updated video inventory of valuable household items and possessions along with any professional appraisals and estimates of replacement values in a safe place away from your home.

If you’re tech-savvy, consider storing inventories and important documents in the cloud. It’s also a good idea to have copies of birth certificates, passports, wills, trust documents, records of home improvements and insurance policies in a small “evacuation box” (the fireproof, waterproof kind you can lock is best) that you can grab in a hurry in case you have to evacuate immediately.

Last, keep some petty cash on hand for emergencies. You don’t want to keep too much cash on hand, but enough to get by for a few days is a good idea.

Resolution #5: Protect your estate

Without an estate plan, the fate of your assets or minor children may be decided by attorneys, government bureaucrats and tax agencies. Taxes and attorneys’ fees can eat away at your estate, and delay the distribution of assets just when your heirs need them most. Here’s how to protect your estate — and your loved ones.

Update your will, or if you don’t have one yet, prepare it this year

A will can provide for your dependents’ support and care, and help you avoid the costs and delays associated with dying without one.

Coordinate asset titling with the rest of your estate plan

The titling of your property and non-retirement accounts can affect the ultimate disposition and taxation of your assets. Keep information on beneficiaries up-to-date to ensure the proceeds of life insurance policies and retirement accounts get to your heirs quickly, without having to pass through the probate process.

Have in place durable powers of attorney and health care

In these documents, appoint trusted and competent confidants to make decisions on your behalf if you become incapacitated.

Consider creating a revocable living trust

This is especially important if your estate is large and complex.

Take care of important estate documents

Make sure a trusted and competent family member or close friend knows the location of your important estate documents.

Finally, remember you don’t have to do everything at once. Take one step at a time. Make some real progress on your journey in 2017.


About LRPC’s Monday Morning Minute

Lawton Retirement Plan Consultants, LLC (LRPC) Monday Morning Minute is crafted to provide decision-makers with important information about the economy, investments and corporate retirement plans in a format that allows a reader to consume the information in less than 60 seconds. As an independent, objective investment adviser, LRPC has access to many sources of research and shares the best and most relevant information with its readers each week.

About Lawton Retirement Plan Consultants, LLC

Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Adviser (RIA) providing investment advisory, fiduciary compliance, employee education, provider management and plan design services to retirement plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or bob@lawtonrpc.com or visit the firm’s website at http://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

Important Disclosures

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.

Additional Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve. Rebalancing does not protect against losses or guarantee that an investor’s goal will be met. This information is general in nature and not intended as specific, individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, please consult with a qualified tax advisor, CPA, financial planner, or investment manager. Please consult with your tax advisor on the deductibility of home equity line of credit interest payments for your specific tax situation. The discussions of various investment types herein is  in no way intended as a solicitation of any product or service offered through Charles Schwab & Co., Inc., its affiliates, or any other investment firm. Investing involves risk, including possible loss of principal. Fixed income investments are subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, corporate events, tax ramifications, and other factors. Investment and insurance products are not deposits, are not FDIC insured, are not insured by any federal government agency, are not guaranteed by a bank or any affiliate of a bank, and may lose value.