Last Updated: December 14, 2009
This time of year, many Americans start to ponder the year that just passed and the year to come. You might be among them. You just might be among those looking at last year's New Year's resolution list, checking off the things you accomplished and the items not yet accomplished. Lose weight and exercise more are typical resolutions.
This coming year, however, your resolutions might not be so typical. In fact, your resolutions are influenced by the economy, according to a recent poll.
Financial planners suggest that you consider adding the following to your 2010 list.
How do you want to be remembered?
"I believe the resolution that can make the most difference on a daily basis is to consider how you want to be remembered when you are gone and treat every day as if it were your last," said FPA member Glen Thiessen, CFP® of Transition Planning, Inc. "This perspective should impact every aspect of your life, such as how you treat people, making sure that your loved ones will be okay when you are incapacitated or no longer there by owning sufficient disability and life insurance, and making sure that asset ownership, beneficiary and guardianship arrangements are the way they should be. The resolution to maintain this very selfless motivational perspective can indeed make things happen that otherwise may never occur. It can make us more thoughtful, caring people who are more considerate of the needs of those around us."
Save, don't spend
Despite a tough economy and the fact our government wants you to spend: Don't. That's the advice of FPA member Michael Brent Hanson, CFP®, CLTC, of Retirement Unlimited. "Keep paying down debt, live well within your means, and save."
But don't just save. According to FPA member Duffy G. Elliott, CPA, CFP®, of Elliott & Associates Wealth Advisors, Inc., resolving to increase your savings by 10 percent is one of the best resolutions you can make. One way to do that is through dollar-cost averaging, whereby a fixed dollar amount is saved every month in some sort of investment. Let's say you are saving $500 per month in your 401(k) plan. Consider increasing your contribution to $550.
Learn more about budgeting, dollar-cost averaging and Roth IRA conversions by searching for those terms on the FPA Web site.
Spend time on your finances
"Spend an hour each month, say on the first Saturday of the month, reviewing your finances, including savings, investments and insurance allocations," Elliot said. "This can be done with a planner or as a do it yourselfer." In addition, he recommends writing your representatives in the House and Senate about the laws that affect your finances. "Let them know that the uncontrolled printing of dollars has to stop — their jobs depend on it," he said.
Consider tax diversification
It's important not to put all your eggs in one basket. But that's not what most people do who are saving for retirement. Most save money in traditional Individual Retirement Account (IRA) and 401(k) accounts, in which distributions will be taxed as ordinary income. For his part, Hanson recommends a strategy referred to as tax diversification — investing money in accounts in which distributions, withdrawals or sales yield the largest after-tax amounts.
For instance, Hanson recommends converting your traditional IRA to a Roth IRA and contributing as much as possible to Roth IRAs. (The contributions to Roth accounts are made with after-tax dollars and the distributions, assuming you meet the requirements, are not taxed at all.) In addition, Hanson suggests contributing as much as possible to Roth 401(k)s and Roth 403(b)s, if available, in your workplace. Why? Hanson says there's a strong likelihood of income tax increases over the next 10 years. "And owning a Roth IRA makes it less expensive for many to pay their taxes now versus later," he said.
Learn more about Roth IRAs and Roth IRA conversions by reading the following articles on FPA's Web site: Roth Conversions: What is New for 2010 & Beyond?; Should You Convert Your IRA Plan?; and Trim Your Tax Bill.
Consider alternative tax-efficient accumulation and distribution methods
If you can save more than you can in IRAs and 401(k)s and have a need for life insurance, whether it be for estate planning or survivor needs, Hanson suggests that you consider additional contributions to life insurance cash values for tax-efficient accumulation. "Make sure your policy offers favorable investment options that give you reasonable growth potential, and zero net cost policy loans to enable you to borrow against cash values more favorably," he said.
Consider or re-consider long-term care insurance
"This is one area of health care that is not likely to be addressed by any government program and [although] costs continue to rise, it poses a huge threat to retirement," said Hanson. Learn more about the use and value of long-term care insurance by reading the following articles on FPA's Web site: What You Need to Know about Health Care; Purchasing a Long-term Care Insurance Policy?; and When Considering Long-term Care Insurance, Don't Forget the Tax Issues.
Hire a financial planner
Find a financial planner who can help you plan for 2010.