Introducing your Personal Planning Worksheet
Regardless of your age, this site contains a worksheet that should be completed and filed in a secure place known to you and your spouse and/or Power of Attorney. The planning worksheet is for your use to consolidate information about your finances; a checklist to remind you of financial issues that you should be taking care of; and as a goal-setting device. We have attempted to make access to and from the glossary easy and convenient. Through the balance of the web-site we provide an introductory education of the many facets to investing.
As an example: You may not be comfortable with your understanding of the various kinds of life insurance. Should you have, a term policy, a whole life (permanent - means the same thing) or Universal Variable? The answer depends on your needs. We would suggest that you review the Insurance Section to enhance your understanding of insurance products to help you make an informed decision to buy or not to buy, and if to buy, what kind and how much. We also address how much insurance each of you (as a couple) might need and show you how to make that computation. It is certainly better to be able to calculate the amount of life insurance that you need rather than trusting an insurance salesman to advise you, even if he/she is correct, it is nice to know for sure.
Please consider this planning process to be extremely important as it is a tool that will allow you to help control your future. Knowing where you are now is critical in plotting your course into the future. Did you know that people tend to spend more time planning their two-week vacation than their expected 30 years in retirement? As you work through this project, you may find references to issues that are foreign to you, take the time to learn about, and understand each one of these issues. We hope time spent in each Section will be time well rewarded.
The first time you work through the worksheet, complete it as a couple, if appropriate. Then certain sections should be completed for each of you as a single person. You need to know where you are if left alone. Defined benefit plans and Social Security can be very complex in and around life and death issues. Did you know that 80% of widows living in poverty were not poor before their husband’s deaths? Often times this is where life insurance should be part of your planning.
If you are young and not all that interested in detailing your retirement, but are interested in how to earn a living. Remember to plan how you want to live – not how to earn a living! Choosing a career that will get you there is up to you. However we do have some suggestions of financial actions you should take that are considered to be the ‘right approach’ by certified planners. Everyone should consider the following:
(1) If you have a 401(k), you “must” invest enough to receive maximum matching from the company. After that, if income tax is an issue you, contribute more. But consider that those dollars are essentially locked until you are 55 years old and then accessible only under certain conditions until you are 59 1/2. Remember also that those dollars were never taxed and under current law will be taxable as ordinary income when they come out. If you have the self-discipline to do it, start an after tax account which allows access without penalty in case you should need those funds. After tax dollars are also wonderful to have in retirement.
(2) If you have someone dependent on you or assets to protect, consider life insurance. See the Insurance Section. Note that we generally prefer what is called ‘term insurance’.
(3) Draft your Will, POA (this always means a Durable POA), and Living Will, if for no other reason, than to make life easier for your family.
If you are older and thinking retirement, you need to remember the same rule, plan how you want to live. Most of us want to retire as soon as possible, but you must be sure you are not going to live in poverty and not enjoy those “golden years”!
Hints
When computing the future value of your IRA, 401(k), 403 (b) etc, you need to estimate your future contributions and a reasonable expectation of future growth.
As you complete the worksheet, be consistent in including income taxes as a payroll deduction or not, and how you treat income tax. During your working years, Form 1040 will be a good guide in making projections because we tend to spend similar amounts and pay the same taxes each year, however after retiring things change. Now social security income may not be included as taxable income or as much as 85% of it must be counted. We suggest you calculate your income, adjustments to income, and then the taxability of your SS.
Use the present value of money in making your calculations, Social Security and maybe your defined benefit plan will adjust for inflation while IRAs and 401(k) s will not. Projecting inflation is at best an educated guess. Besides, those inflation rates we hear about are computed as if we are starting all over every year. Your house payment is not likely to vary with inflation every year. The Asset Allocation topic has purchasing power tables considering various inflationary rates. We suggest you print the worksheet or move it to a place that will allow you to make entries.
Remember that this is your plan and is a ‘work in progress', modify it as your circumstances and knowledge of financial planning develop. Review it regularly. The big step has been taken; all that remains now is your implementing the necessary steps to reach your desired results.
Okay! Maybe we are a ways away from the goals, but we are started. If the worksheet results are not what you had hoped, do a review to see what is in your way. First, are your goals realistic? Next, can we payoff some debt, reduce operating expenses, or increase your retirement account contributions. Perhaps you could be working for an advanced degree to increase your income. Imagination is your only limitation in getting you on track. Develop a supplementary income source.
All decisions made from now on should be made after reviewing the information available to you from this site and perhaps consultation with an advisor. (We would suggest someone certified.) Remember it is easier to get it right the first time than it is to go back and fix it later. Sometimes things can’t be fixed retroactively! Try to get the concept right before you commit.
Make the right business decision, tell your accountant about it before you sign the deal because he/she may know a way to better structure it for tax purposes, but do the deal because it is the right business decision. Do not let it be controlled by the tax impact. Make the dollar and pay the tax! But, know what the taxes are going to be so you can plan appropriately.
Personal Planning
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