By Erin Eddins Financial Well-Being
Your 40th birthday is a good opportunity to take stock of life, including your financial life.
Many people have achieved, or made plans to achieve, various milestones — getting married, buying a home, starting a family or preparing for the kids’ education. Now it’s time to look ahead. Your future financial success will rise from the bedrock of the careful planning you do now.
Let’s look at three important areas.
Protect Your Income: One of your most valuable assets is your “human capital” — that is, the present value of your potential future wages. At age 40, you likely have significant years of prime earning potential ahead of you. Protecting your future wages is critical, and that protection includes disability insurance. If you have disability coverage through your employer, it may not be enough to cover essential expenses, so consider a supplemental policy.
Umbrella insurance is a line of protection that’s often overlooked. It is a second layer of liability coverage that would kick in after home and auto insurance in the event you were sued. For example, let’s say a judgment was issued against you for $2 million and your home and auto insurance only provided $800,000 in personal liability coverage. An umbrella policy could potentially cover you for the balance of $1.2 million. Umbrella insurance is relatively inexpensive, and well worth the peace of mind.
Estate Planning Basics: Estate planning can potentially involve trusts and other complex strategies, but don’t neglect the basics of any estate plan — your will and power of attorney. Update your will to reflect changes in federal or state legislation, your choice of beneficiaries, the titling of assets and any other change in circumstances.
A general power of attorney is important to have in place so that if you become incapable of making financial decisions, a family member or trusted associate can do so on your behalf. Be sure to check with banks and other institutions to make sure that the power of attorney you have drafted will be accepted without question.
Your Vision Of Independence: At age 40, retirement may sound like a distant prospect. Think of it instead as financial independence and start thinking about it now. Envision a future in which you can leave your job, change careers, volunteer, spend time with family or whatever you want to do when you can do as you please.
After you imagine the “what” of independence, look to the “when”, “where” and “how.” When you retire may depend on how much you save and how you invest that savings, so careful planning is in order.
Think about where you’ll enjoy your retirement and where you’ll live so you can understand the living expenses you’ll incur. Consider how you’ll live and the type of lifestyle you want once your working days have ended.
These financial plans, made early and wisely, can significantly affect your financial future.
Erin Eddins is a chartered financial consultant, a member of the Financial Planning Association and is a certified financial planner with StanCorp Investment Advisers Inc. She specializes in Social Security maximization, pre- and post-retirement planning strategies and asset management. She can be reached at firstname.lastname@example.org or 425-212-5986.