It’s the New Year and if you made a resolution to become fiscally fit below are the recommendations of a team of financial advisers to start 2007 on sound footing:
1. Don’t Skimp on Disability and Long-Term Care Insurance
Regardless of how much you earn or the value of your assets, financial planners recommend disability insurance. Consider a policy that allows an increased benefit as income increases as well as one that offers long-term care coverage, if available. A long-term disability could be very expensive, and Social Security disability generally does not provide adequate coverage.
2. Get a Life Insurance Policy
Many retirees cancel their life insurance policy when they leave the workforce, a bad idea according to financial advisers. Instead, insure a large portion of your estate with a one-time deposit in a universal life policy. The investment can grow tax-deferred inside a policy designed to have cash value. If you need the money in the future you can withdraw it without penalty.
3. Save for College
If you have a young child the time to start saving for college is now. If your child is six months old and you begin investing $200 per month in a 529 college savings plan that earns an 8% annual return it would be worth $97,000 when your child reaches the age of 18. However, if you wait until your child is 9 years old to begin investing, that same plan will only yield $32,000 by the time your child is ready to begin college.
Financial planners also recommend starting a 529 plan if you yourself plan to return to school. If you don’t use all the savings on school, you can change the beneficiary to one of your children. For more information on 529 plans, go to www.SavingForCollege.com.
4. Put Your 401(k) Back on Track
Beginning in 2007 you can contribute up to $15,500 ($21,000 if you are age 50 or older) to a 401(k) at work. If you can’t afford that much, make sure you contribute at least enough to qualify for the full company match, which is essentially free money.
Study your investment selections carefully, as companies change investment options frequently and not all funds are top performers in their respective peer investment category. Also, compare your plan to your spouse’s, drawing on the strengths of each to create a more complete portfolio.
If you don’t have a retirement plan at work, consider opening an IRA, Roth IRA or SEP plan. For investors with lower incomes, financial experts recommend the new Roth 401(k) as an excellent alternative to the traditional 401(k) as it enables more value from tax-free distributions.
5. Make Your Cash Work
Check the return on your cash savings account. If it’s not at least 5% then start looking elsewhere. One financial adviser recommends Internet banks, which are FDIC-insured, pay over 5% and have no minimum or time requirements. For other high-yielding accounts, go to bankrate.com.
6. Get Your Estate in Order
You may think estate planning is only for older couples with considerable assets to protect, however, experts say you should think again. A younger family with small children should create a will and designate a guardian for their children. A single individual needs a plan that designates health-care directives and, if you choose to donate your assets to charity, a will or living trust containing those directives as well.
7. Free Up Your Credit
Start the New Year off right by reviewing your credit report. You are entitled to one free report per year from each of the three main credit bureaus. Experts recommend you review one now and then monitor your credit by reviewing the others every four months. For more information go to www.annualcreditreport.com.
msnbc.com, January 2, 2007