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Is Your Financial Plan Dusty?

Finance

Issue: February 2009

By: Jerry Mosher, CFP

If you have created a financial plan before, now is a good time to get it out to review your progress or to see if anything has changed. If you have never worked on one, your ship has been sailing without a rudder and it’s most likely that your destination will not be the one you desired.

Modules that are useful to include in a financial plan are those of investment, tax, insurance, retirement, and estate planning. Let’s look at a few issues to consider when thinking about these modules.

Investment Planning - One consideration in this arena is the risk you want to subject yourself to when allocating your portfolio between financial assets such as cash, CDs, bonds and stocks, and hard or illiquid assets such as real estate, commodities, gold, silver, etc. Generally you are rewarded with a higher return if you are willing to live with fluctuations in the value of your investment portfolio. After last year, you may be wondering if this principle is still valid.

Tax Planning - Most of my clients tell me they don’t want to pay any more in taxes than is legally necessary. It is therefore useful to look at possibilities for incurring or deferring deductible payments between two tax years, at gifting rules, and at opportunities for contributing to various types of retirement plans. The proper use of these vehicles can benefit you tax wise. It’s useful to explore and develop a plan with your tax person and financial advisor.

Insurance Planning – Most people would rather not think or talk about insurance, given that it relates to some undesirable outcome. It is useful to proactively match a well developed strategy with an amount of insurance that matches that strategy. This pertains to decisions in the areas of life, disability, health, long-term care and property and casualty insurance. I find that people have often made piecemeal decisions that have led to an accumulation of coverage in each area that lacks continuity with their current desires and is therefore worthy of review.

Retirement Planning – This relates to determining how much income and accumulated assets you will need at some future point in time to support your particular standard of living. Given current longevity, this sum is usually much greater than most people envision. Once you’ve assessed this amount you can begin to address how much you will need to save and which vehicles to employ to help you get there.

Estate Planning – For most people this constitutes the production of wills, powers of attorney for health care, powers for financial management, and possibly trusts. These documents contain personal preferences and language that is designed to take advantage of existing tax law. I find that this is an arena where people are often delinquent in either having initial documents drafted or in updating existing documents. I think this delinquency is reflective of how exhausting the decision making process can be. Having seen the burden and extra cost that is often placed on the survivors when this documentation isn’t done, we encourage and remind our clients of the importance of taking action in this area.

If one of the above modules has a few more cobwebs than the others you might use it as a starting point for dusting off your entire financial plan. If you are not competent in each arena, you should consider getting some help. You’ll be glad you did.

Jerry Mosher, CFP® is a 30 year veteran of the financial planning industry and is president of Mosher & Ellis Financial Planning in Lafayette, California. He has been selected three times as one of the 150 best financial advisers for doctors by Medical Economics. Jerry may be reached at (925) 284-9470. Securities offered through AMERICAN INVESTORS COMPANY Member NASD/SIPC.

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