Financial Planning Checklist

Have you thought about how much money you need to retire?  Or if you have enough insurance—or even the right kind? Or if there is anything more you can do to save taxes throughout your lifetime?  These are just a few questions you can answer by doing a comprehensive financial plan.

According to a national survey conducted in 2016 by the Certified Financial Planner Board of Standards, Inc., more than 52% of American households are unsure if they will have enough money in retirement.  Only 35% have used a financial planning professional to assess their situation and create a plan for the future.  Financial planning can benefit people of any income level by answering some of these “unknowns”.

Here are seven financial planning areas to think about.

  1. Set your savings goals and create your cash flow plan.

    Have you put your financial goals on paper?  Do you know where you will be financially this year, or next year, or in retirement? Putting a cash flow plan in place and keeping it current every year will help you achieve what you’ve set out to do, financially.

  2. Create your estate plan.

    Basic estate planning documents include a will, a durable power of attorney for financial matters, a healthcare power of attorney for health care matters, and a living will. Significant life events such as births, deaths, divorces, marriages, or changes in state residency often lead to changes in your goals, so documents should be reviewed and updated to reflect these changes, as needed.

  3. Get an insurance review.

    Consider all types of insurance needs, including life, long-term care, and disability coverage.  They all serve a different purpose.  The insurance industry is constantly changing. New products become available, premiums may go up or down, and what you needed five years ago may be different than what you need today. If you are wondering about your existing policies and if they are still in line with your needs, have an insurance review done and discuss with your advisor if you still need the policies you have or if you want to add any additional coverage.

  4. Understand your investment strategy.

    Is your investment strategy still in line with your risk tolerance, your time horizon for retirement, and your cash flow needs now and in the future? A financial plan will show you how much risk you need to take on to grow your assets to the amount you will need in the future. From understanding your needs, you can then decide how much risk you want to take on.

  5. Look at asset location.

    Where are you holding your assets? From a tax standpoint, there are three different “buckets”: (1) a taxable account; (2) a tax deferred account like a Traditional 401(k) or a Traditional IRA; and (3) a tax-free account like a Roth 401(k) or a Roth IRA. Starting with where your assets are located today, think about if there are any changes you can make to create more tax-efficient accounts and maximize your after-tax returns over your lifetime. For example, consider holding your dividend paying stocks in the taxable accounts as the income these investments generate get preferential tax treatment at “qualified rates” (up to 23.8% at the top federal bracket) vs. bonds that pay ordinary income and get taxed at your marginal tax rates (over 43% at the top bracket).

  6. Consider a Roth conversion.

    Roth conversion can be a powerful tool in your overall financial plan. Assess your personal situation and see where your tax bracket is today vs. where it might be in the future.  If you are in a lower bracket today, it may be an opportunity to shift money from a tax-deferred bucket (Traditional IRA) into a tax-free bucket (Roth IRA). If you can use lower tax rate years to move money into tax-free accounts, this will minimize the taxes you pay on traditional retirement distributions over your lifetime.

  7. Do a multi-year tax plan.

    Your cash flow plan will help lay out your taxable income levels over the years.  The biggest tax savings come from taking advantage of deductions in high tax rate years and taking advantage of income recognition in lower tax rate years.  In addition, there may be years you can take advantage of certain deductions you would otherwise lose out on if you fall into paying the Alternative Minimum Tax. Running a tax projection every year to see how the current year compares to the following year will help identify tax savings opportunities and reduce the taxes you pay over your lifetime.

How DHJJ Financial Advisors Can Help

Your plans will change throughout your life and your financial plan should change with you. Contact DHJJ Financial Advisors to work with a Certified Financial Planner ™.