Greeting Constant Investor,
It is a new year and all things seem possible. “Money Fitness” is always at the top of America’s New Year Resolutions. Here are 5 steps for a New Year start!
Step 1- Your mortgage. If you have a mortgage and your rate is above 6%, you may want to think about refinancing at these low rates. We typically recommend a 30-year fixed rate mortgage, with no points, to most people. But sometimes, situations dictate otherwise. We also advise on how to pay off uncollateralized debt, like credit cards. We can sit down and analyze this with you as well. This is one of our many services on our menu.
Step 2- Your income. This one’s for the unretired. The single most important financial asset you have is your income. If someone earns $75,000 for 15 years, that’s over a million dollars! Did you know you could get income insurance in case you are disabled? It only takes a small percentage of income to purchase and it is yours to take from job to job, unlike some of the income insurance available from your work. We cannot stress enough how important it is for you and for your family to have disability insurance. To get a plan designed, call our office manager, Dan Seifring, to set up an appointment for an income insurance chat. Or, send us an email with the following information, to get a quote: Occupations, Incomes, and Birthdays. By the way, this is not just for one of the income earners. Health Insurance pays doctors and car insurance pays the body shop, but who pays you? Long Term Care is another issue that relates to your health. There are multiple methods to pay for long term care needs. From using your own income to using insurance products, we can go over these as well.
Step 3-Retirement Plans. Now’s a good time to re-examine what’s offered through work. If employers are kind enough to offer a match in your retirement account, take advantage of it. Then there’s the decision of, “What account you would like to put it in?” For most people, dependent on income, we recommend that the money withheld from your paycheck go to the Roth 401(k) account. Sure you won’t get a deduction on that amount, but it will grow tax free as long as you follow government guidelines.
Step 4-Life Insurance. A down and dirty calculation of how much life insurance you need can be found using the Clark Calculation©. Howard came up with this calculation over 40 years ago and it still holds up beautifully. Take your income that would end upon your death (salary, pension, Social Security, etc.) and divide it by 5% (or 0.05 if you’re using a calculator). This gives you a rough estimate of the pile of money it would take to replace you financially. There are those that say this may be too much money. But I’ve never had a widow or widower say, “This is just entirely too much death benefit.” Here’s what it looks like if you earned $55,000 per year: $55,000/0.05=$1,100,000 That means it might require a pot of money, over a million dollars, to replace an income of $55,000!
Step 5- FPD. So what the heck is FPD? No, it’s not the fire and police department. • Faith • Patience • Discipline The news has us scared when the market goes down (as it does) or even when it goes up (as it does). But, we must have Faith in the future being brighter. Develop Patience to ignore the guttural reactions that may sidetrack long-term success. Cultivate Discipline to stick with your planned savings and withdrawal rates. We are always happy to review where you are now and where you want to go! Follow these steps to get a good jump on the year. Please visit our website often to see what’s new on the Blog. We hope you look forward to these correspondences as much as we enjoy writing them.
Regards, The Clark Associates Team