How to Get Financially Fit in 2018

By J. Saunders Wiggins, CFP®, AIF®

J. Saunders Wiggins, CFP®, AIF®

J. Saunders Wiggins, CFP®, AIF® CEO/President

For much of January, we’re still excited about the new year and any resolutions we made. We often think about how we can exercise more or have a healthier diet. It’s also worth giving thought to how we can better manage our savings and investments. For many of us, when we turn the calendar to February, our resolutions become forgotten or neglected. Below are simple tips to help you keep your financial fitness resolutions in 2018. 

Your 401(k) 

Hopefully, your employer offers a 401(k).  If so, your 401(k) is a great place to start. It’s worth spending a moment to make sure that you are taking advantage of your employer’s 401(k) match. If you’re not, you’re leaving free money on the table.

To the extent you can afford it, make sure you’re maximizing your 401(k) deferrals. The new deferral limit for 2018 is $18,500 for those under the age of 50. If you happen to be 50 or over, you can contribute an additional $6,000 as a “catch-up” contribution.

It’s worth investigating whether your 401(k) offers a Roth provision. With a Roth 401(k), your deferrals are going into your account on an “after-tax” basis. You will be able to take them out tax-free assuming you wait until age 59 1/2. With a traditional 401(k), your contributions are going in on a “pre-tax” basis. No one knows what tax rates are going to be in the future, so it might be worth contributing to both the Roth and traditional 401(k) “buckets.” 

But remember, you’re only able to contribute up to the limit of $18,500 (plus $6,000 for those ages 50 and older) for Roth and traditional deferrals combined.  Conventional wisdom says the younger you are, the more the Roth should be considered. Each person‘s situation is different, so consulting your tax professional is always a good idea when considering tax questions.

Asset Allocation 

Now is also the perfect time to re-evaluate your investment allocation.  Consider rebalancing your portfolio back to your desired allocation target. Individual investments perform differently throughout the year. The concept of rebalancing is to sell the winners and reinvest in those that have not performed quite as well. By following this process on a recurring basis, you maintain the desired level of risk. 

And on the point of risk, it’s important to remember not to make adjustments to the portfolio based on “timing the market” or your emotions driven by fear and greed. We believe the most appropriate way to manage the portfolio is through a thoughtful approach, considering your time horizon and risk tolerance.  Common knowledge says the younger we are, the more risk we can afford to take. Conversely, as we get closer to retirement, it’s appropriate to consider reducing risk so that our investments are safer as we get closer to the time of needing them. 

Lifestyle Expenses 

Now is also a great time to re-examine your spending and the lifestyle you live. Consider what you’re spending to determine if there is an opportunity to reduce unnecessary expenses. This is a very important step in developing an understanding of how much money you’ll need when you retire. There are software programs available that can take your current living expenses, factoring in cost-of-living adjustments, to determine how much you need in retirement to enjoy retirement.  If you don’t have the time or inclination to do this on your own, we can help.

Other Opportunities 

The following is a short list of financial considerations.  Reviewing your life insurance needs, establishing a 529 for your children’s education and making sure your wills and trusts are up to date a few others to consider. 

Like most things, the more attention placed on something, the more important it becomes.  And the results will follow. Reviewing your financial strategies is the perfect way to make a fresh start - any time of the year.  Let us know how we can help!  

 Talk to a Financial Advisor 

— Topics: Financial Planning