FINANCIAL PLANNING TIPS FOR 2018
A recent survey showed that in terms of retirement literacy, many people leave a lot to be desired.
In fact, 80 percent of the respondents failed the test, which posed questions about retirement planning skills, income generation and general retirement finance literacy.
The survey found that:
* Only 1 in 4 have a written financial plan, even though this leads to better financial planning and financial decisions.
* A significant minority have never tried to work out how much they need to accumulate to retire securely.
* Only 31% know that R40,000 is the most they can afford to withdraw each year from a R1,000,000 retirement account, to make it last 30 years.
* More than half underestimate the life expectancy of a 65-year-old man, which suggests they may not realise how long their assets need to last.
Here are some practical tips from leading financial planning thought leaders and professors which can help take your 2018 financial planning to the next level and to a more financially secure future.
Tip 1 - Maximise Your Retirement Savings.
There are secrets to maximising retirement savings. One of them is to put savings on autopilot, for example paying down a mortgage. Another is to fully utilise tax-advantaged retirement vehicles and finally, forget that you have this money!
Tip 2 - Re-allocate Your Investments.
With the recent surge in equity values, remember that long-term performance, particularly for the portfolios of retirees, is better when the stock allocation is returned to the target allocation on a regular basis. In simple terms, with the current elevated values of equities, it is a good time to lighten the equity load and add to the bond allocation.”
Tip 3 - Don’t Forget Your Estate Plan.
Comprehensive financial planning includes estate planning and emergency planning for families. Much attention is given to savings for emergencies. The typical recommendation is for six months of compensation saved in a liquid account. What about premature death planning? Will there be assets to take care of final expenses and sufficient liquidity to provide for family needs? The time frame of these needs will indicate the amount of funds necessary and the amount of those funds which need to be liquid. There are personal savings, employee benefits and life insurance proceeds which may be available to provide for the needs of the family. Are these funds structured properly, as quite often, they are not. The client’s will, personal asset titling and beneficiary designations all need to be reviewed to ensure that family needs will be matched by both the amount of funds available and how the funds are made available.
Tip 4 - Invest For The Long Term.
Success in investments is a marathon and not a sprint. Develop an investment strategy and stay with it, no matter what market conditions are doing. Since 1926, a diversified portfolio of large capitalisation stocks has earned on average, 10 percent compounded annually. Corporate and government bonds have returned approximately 6 percent. Success in the stock market is largely about showing up and sticking to a long term plan.”
Tip 5 - Capital Ownership Is Key.
Strive to be the owner of capital. Appreciation is never taxed until you decide to be taxed. This means you have control. Not only do you have control, but those gains are preferentially taxed at long-term capital gains tax rates. Furthermore, the returns of capital qualified dividends and long-term capital gains are also preferentially taxed. Whenever one can afford to be compensated with stock rather than with ordinary income, there will be a greater long-term advantage. In many ways, it’s not how much you get paid, but how you get paid.
Tip 6 - Manage Debt To Stay Out Of Debt.
Without a strategic debt management plan, you will probably continue to accrue debt, which puts you further behind and makes it harder to escape. Debt management includes strategically paying down the most expensive debt first, for example credit card debt, then personal loans, then student loans, then housing debt. However, debt management is also just as much about avoiding future debt and looking for areas to cut back spending or at least, spend smarter. If you buy coffee every day or eat out at lunch, think about packing lunches or buying a coffee machine, which could save money in the long term.”
Tip 7 - Talk With Loved Ones About Money.
Couples often hide financial secrets from their partners, which can negatively impact on a relationship. Take time to talk to a significant other about your financial goals and what you want for the future. Take time to build a shared vision of what your future looks like. For parents, take time to teach your children about money. Children learn about money whether we deliberately teach them or not, so be conscious about what money messages your children receive.
Tip 8 - Review Insurance Cover.
Review insurance cover regularly, to ensure that the amounts of cover are still consistent with your original needs and intent. This means reviewing life insurance, health insurance, disability insurance, car insurance and homeowners insurance. You might find out that you need some additional insurance cover by way of an umbrella policy. Insurance is not the sexiest of financial planning discussions, however it is crucial to living a financially secure life. Where life insurance is involved, be sure to re-evaluate your beneficiary designations and cover amounts after major life events.
Tip 9 - Do Something For Your Children.
Think about what small thing you can do in 2018, which will have a huge impact for your children 10-15 years from now. Perhaps it is to fund an account for university, establishing a trust or funding a small investment account, so they have a safety net after university. Small acts taken today can be life-savers for your children when they become adults.
Tip 10 - Develop A Retirement Risk Management Strategy.
Retirement income planning is different from saving and accumulating wealth for retirement. The risks are different. Retirees need a plan to manage market volatility, their unknown longevity and a variety of spending surprises, such as a need for long-term care. Planning with only investments or only insurance is rarely the most efficient way to develop a plan which can manage these varying risks. Now is a good time to start reading more about retirement income, to develop an integrated and cost-effective plan for managing all the retirement risks.
It is important to remember a few key points about a successful financial year. There is power to planning, so get a plan set up. Automate your savings and investment strategy whenever possible. Take time to envision your financial future. Review your emergency fund, insurance cover and investments this year, ensuring they still meet your goals. Finally, it is good to seek out and find a quality financial planning professional, with solid recommendations and recognised credentials, to help you finalise your financial planning for 2018.
Need some guidance and get your financial plan in order and on track contact me Warren Basel on
082 490 5182 or email warrenb@oraclebrokers.com
Acknowledgement - this is adapted from an article written by Jamie Hopkins for Forbes Magazine.
