Year-End Financial Checkup

Use this guide to help you evaluate your financial health

RETIREMENT PLANNING
Determine how much you’ll need. Generally, says Dawn Brown, a senior financial adviser with Altfest Personal Wealth Management, 10% of gross pay should be put aside for retirement, but much depends on your goals. Figure out an annual withdrawal rate of at least 4%, she adds, assuming a 60% equities and 40% fixed income portfolio. Don’t just guess how much you’ll need for retirement; tally your exact requirements annually using a retirement calculator such as the one at Bankrate.com.

Don’t underestimate your time horizon. You don’t want to risk running out of money during retirement. “Plan for a longer time horizon than your parents or grandparents,” says Barbara Walker-Green, personal wealth and retirement planning adviser with Advanced Wealth and Retirement Planning Concepts. Generally, the longer the time horizon for your investments, the more risk you’ll be able to take on. “Many people make the mistake of assuming too little risk because they focus on short-term volatility,” she says. “They may end up with portfolios that underperform and that keep them from reaching their goals.”

Maximize your employer-sponsored plan. Contribute at least the amount your employer will match. Make sure your portfolio is diversified among various types of investments and holdings and that the allocation fits your age, retirement goals, and time frame. Also, anticipate obstacles. “Think about significant changes that might occur in 2011, such as a child graduating, which may free up more cash. Or a teenager who will be driving and want a car, which may reduce how much you can save toward retirement,” advises Lisa Baskfield, a CPA and CEO of Baskfield and Associates CPAs.

SAVINGS
To keep your financial plan intact, you’ll need sufficient savings. Most financial planners recommend saving the equivalent of six to eight months of expenses. If you haven’t started building a cash cushion, now is the time. Make saving easier by having a set amount automatically deducted from your checking account regularly, or set up an automatic deposit into an online high-yield savings account from your paycheck. When an emergency occurs, this savings will keep you from maxing out your credit cards or raiding your 401(k).

Now that you know what to look for, start reviewing your finances. Conduct a thorough inventory, and commit to monitoring your progress as you go through 2011. By this time next year, you’ll be well on your way toward building wealth for you and your family.


–Additional reporting by Sheiresa Ngo

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  • Dorina

    You should claim the pro-rated amnuot you paid on the old property and any pro-rated amnuot you paid on the new property (often in advance of the year-end billing), then remember to make any necessary adjustments after official tax bills come out and get re-divided. In theory, you paid the taxes by giving the money to somebody else (or putting it into escrow for taxes) and you are allowed to assume they actually made the necessary payments to the necessary authorities. A lender holding tax escrow should give you an annual statement of taxes collected, held and paid out.