Is it Party Time Yet?
Let’s see, how does that old song go - "Happy days are here again..." In the space of three short months, we have taken you through your first job out of college, to marriage, and finally to children. To avoid being branded as malicious, we’re going to skip the teenage years and head straight to the day after your last child graduates from college.
Mom and Dad, you are finally free to live your own life again - at least theoretically. Fortunately, that is not entirely true. You still have the hope of grandkids you can spoil to make sure the "parent's curse" remains alive and probably many more joyful (and some not so joyful) moments ahead of you. Even if the kids really do hop off the gravy train, your not out-of-the-woods with your financial planning, it just means you will now shift priorities.
Priority One - Party!?
If you were hoping we were serious about now being the party portion of your life, we are sorry, but it’s not. Actually, this is supposed to be the most productive part of your life. The period from your early 40s to your late 50s or early 60s should be the time prior to retirement when you have the most time to devote to your career, earn the greatest amount of money and have the least need to spend all of that money.
Once the kids are through college, you hopefully will free up a good amount of cash flow that can be channeled into savings and retirement vehicles. If you haven’t been fully funding your IRAs or qualified employer plans, this is the time you should be able to start doing so. If you have been fully funding tax-deductible vehicles (traditional IRAs, qualified plans), you should be able to start contributing to a Roth IRA or tax deferred annuity product.
So what is Priority One? It’s to take a look at where you are and figure out where you want to be in 20 or 30 years. Then you can look at your present situation to develop a plan to get there, and ok, if you insist, a Caribbean cruise every few years is probably workable.
Chances are you still owe something on your house and have some rather nice items you want to protect inside. This simply means that you will still need insurance; at least two types of insurance. You will need the property and casualty insurance you have been carrying to take care of possible losses to the house and, more importantly, you will still need your life insurance. While it may be true that the need to provide for children graduated with your kids, if you or your spouse die prematurely, do you really want the survivor to worry about making the house payment and paying the monthly bills?
If you have a large enough estate that it will be taxable, life insurance will become especially critical to your heirs as a means to pay the estate tax. Suppose you grew up on the farm that’s been in the family for 100 years and have kept the 100 acres in the family since. What happens if you die with an illiquid estate and your heirs need cash? They may be forced to sell the property to pay the taxes. Sufficient insurance to pay the tab might keep the family home in the family.
If you took our advice and obtained a disability policy early, keep on paying the premiums. Until you have no need to work for your living, there is always a possibility of a disability hampering your ability to meet your obligations. Disability income insurance will help fill the gap for you.
Now that the kids are gone, you need to start planning for the day when you go into a long-term care facility or just need long-term care at home. Depending on your age, long-term care policies can be a good buy and, given the cost of nursing care these days, they are becoming a necessity. Remember, most health insurance policies are not going to pay for custodial care and generally have limited benefits for home health benefits.
Speaking of health insurance, please do your best to maintain adequate health coverage. It may not always be possible, especially if you are at the mercy of an employer, but keeping good coverage is essential to overall planning.
According to experts, most portfolio gains are the result of properly allocating your investments. When you were younger, allocating most of your investment dollars to higher yield, higher risk investments made sense. With most of your life still ahead, any losses in your early years could be made up in the later years before retirement.
Now that you are reaching middle age and getting closer to retirement, you need to rethink how much risk you wish to take in your retirement savings. This will, of course, require some input based on the numbers and historic market trends, but most importantly, you will need to be able to sleep with the results of your decisions. Make sure you don’t take more risk than you can handle.
Just because the kids are gone doesn’t mean it’s time to party in your financial life. Chances are, you still have many productive earning years ahead and it’s not quite time to hop on the retirement train. In fact, you probably still need a substantial increase in your retirement and investment accounts to retire comfortably. Why not give us a call today. Our years of experience in helping clients chart their financial course are available to help you prepare for your future "party time."
Have a great April and please keep the troops in you thoughts and thoughts.