Comprehensive planning yields financial security

When was the last time that you undertook a review of all aspects of your financial life? Like many people, you’ve probably dealt with certain financial issues as they arose. But what about an integrated, strategic overview of where you stand today, and where you want to be tomorrow?

As the saying goes, there’s no time like the present.

Portfolio review

Review your portfolio now, and regularly.

How have time and changes in your personal circumstances affected your investments? If you already have an asset allocation strategy, you want to make certain that it still makes sense with current circumstances. Keep the strategy in balance and modify it as economic and personal circumstances dictate.

Have your objectives changed? Are there new liquidity needs or tax issues that should be addressed? These factors and others will play a part in deciding whether modifications to your current investments are needed.

If you are nearing the end of your working years, retirement calls for some new investment thinking. Usually, the focus is on risk reduction, income enhancement and the protection of your purchasing power.

Tuition needs

Given how much money is needed to pay for a college education these days, the time to begin saving is when the children are young.

Uncle Sam offers some options. For instance, you can open a Coverdell education savings account, or as it was formerly known an education individual retirement account, for each of your children and contribute up to $2,000 a year. The earnings in the account grow tax-free as long as withdrawals are used for qualified education expenses. Unfortunately, not everyone can fund an education savings account. An individual’s ability to contribute the full amount phases out between modified adjusted gross income of $95,000 and $110,000. For joint-filing couples the phase-out range is now double those amounts, $190,000 to $220,000.

No such limits apply to Section 529 college savings plans. A Section 529 plan is a state-sponsored savings account, available in all 50 states. The account is set up for the purpose of saving in order to pay for most higher education expenses at eligible institutions. No federal tax is paid on the income earned on amounts accumulated in a Section 529 plan. Even better, when withdrawals are made and used for qualified expenses, they won’t be taxed either. (This special treatment currently is set to expire after 2010 unless Congress decides to extend this tax break.) Often, there won’t be any tax consequences at the state level, either.

Insurance needs

Make certain that your insurance coverage is adequate. A key element of financial planning is risk management – protecting your assets and income in the event of the unexpected.

The first step is to review your current coverage. Is your life insurance still sufficient? Have you explored the wide variety of policies available – whole life, variable, universal and term? What about disability insurance?

Other kinds of coverage might not spring automatically to mind, but they bear examination. First, should you purchase a long-term care insurance policy? There is a wide variety of policies and options to consider. And because age determines the premium amount, you might want to explore coverage now.

Insurance might play an important role in your estate planning. If you own a family business or other illiquid asset, a life insurance policy in your name, or in an irrevocable life insurance trust, can be used to pay the taxes and avoid a forced sale of the property.

Retirement planning

Consider just a few of the tasks necessary to determine how much you’ll need for your retirement. For instance, you’ll need to project your annual income and expenses during retirement. Adjust your numbers for inflation between now and your retirement as well as after retirement. Find out how much your Social Security benefits will be (and when you’ll want to begin receiving them) as well as your retirement plan benefits (pension or lump-sum payment).

If you are entitled to receive a lump-sum distribution, will you take it in hand or roll it over into an IRA? If you choose the latter route, you can continue to shelter your retirement assets from tax, but you’ll need to take the right steps.

All these decisions need to be made well in advance of retirement in order to keep all of your options and opportunities available.

Estate planning

An initial estate plan is not a final one. Revisiting your planning regularly is essential.

Is your will up-to-date? Changes to your family constellation (new children or grandchildren, marriage or divorce) might prompt some rethinking. Changes in your financial life might make new provisions a must (sale of a business or an inheritance). External factors (the ups and downs of the market, new tax laws) also might, in effect, rewrite your will and estate plan.

Troy E. Kennedy is senior vice president and shareholder with Springfield Trust Co., a locally owned, independent trust company managing approximately $500 million in investments.

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