It's a new year, time to review finances

PHOTO/Rob Stapleton/AJOC
kukes.jpg As we enter the new calendar year, it’s always a good time to consider your overall financial plan. Any review should include the four primary sections in every financial planner’s book: investment, insurance, retirement and estate.

wealthbuilders.jpg Investment

The latter part of 2000 provided a great reminder of what it means to have good, solid financial planning that includes discipline and diversity. Since October 1987, when the market crashed and then recovered instantly, stock return expectations have been out of whack.

Not only do investors who lived through that ’80s cycle believe that a downturn is an opportunity to buy because the market immediately turns around, but the last five years have convinced investors that stock returns should grow 15-26 percent per year.

Such returns don’t remotely resemble the historical average return for equities over a long period. Of course, a big part of this perception is a result of young investors who have experienced a market that had only gone up. Not only did the up-market cause normally conservative money managers to put more of their wealth into stocks, but also larger percent allocations in the sectors that seemed to have no upside boundary -- volatile technology stocks.

There was no "plan" basis for this type of investing, just greed or "herd mentality." Re-evaluate your holdings, set realistic expectations for returns that provide a source of funds to meet future needs and stick with the plan.

Insurance

Review your property, health and life insurance. Insurance should cover the catastrophe. Do you have every item insured that, if lost, would cause undue stress on your financial well being? Specifically, do you still need collision on your automobile and is the deductible right for your financial situation? Will insurance cover the replacement of your home?

In the health area, I recommend coverage for the major situations, unless premiums are less than the cost of medications and/or doctor visits. Health insurance is one area that an annual review of benefits compared to costs can save you money.

Check life insurance coverage. Has your situation changed in the past year -- an addition to family, change in job, change in cost of living, earnings capacity or net worth? Don’t forget to consider disability insurance. You are much more likely to become unable to perform your current job than to lose your life. How would your loss of income affect family lifestyle?

Retirement

You are never too young to be considering your plans for this stage of life, even if currently it only pertains to setting aside earnings in a 401(k) or individual retirement account. Under what conditions would you like to leave your profession and when? Do you want to continue earning income in some capacity in this profession or another? Where would you like to live? What kind of lifestyle would you like?

What amount of income will provide you the ability to do what you want to do? Are you closer to your retirement goal at yearend? If not, why not? What adjustments should be made?

Estate planning

The one area of planning most likely to be neglected, but likely to have the greatest consequence on your family fortune is the estate plan. If you have a will that has been updated in the past few years based on your current family situation, you are more prepared than most. Be sure your family and the executor know where to find the will. Send a copy to a close relative, as well.

If your estate exceeds the unified tax credit of $675,000 this year, including life insurance proceeds, or you have real property in more than one state, then you should consider having a trust, as well. If you don’t have a will, contact an estate attorney and get one. An estate attorney will meet with you to discuss your needs, and will quote you a price to provide the service required.

The financial planning exercise requires some effort on your part to be effective. Begin by collecting information about your current situation. I would suggest completing a balance sheet for starters so you can see what you own, what you owe and your net worth.

At the very least, bundle up your balance sheet, three years of tax returns, your current will and any trust documents, retirement account statements and insurance policies and go see a financial planner. Remember, if you don’t do anything, nothing will change.

There are a number of certified financial planners in Anchorage that will assist you in your review. Some work for a fee, some make commission on selling you financial instruments and some do both. Interview each with an eye toward experience in their field, what others say about them and your comfort in talking with them.

Ron Kukes is president of First Interstate Bank of Alaska.

Updated: 
01/27/2001 - 8:00pm

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