2726: What’s Probably Missing From Your Financial Plan by Erik Carter of Financial Finesse

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[00:01:10] This is Optimal Finance Daily, episode 2726. What's Probably Missing From Your Financial Plan

[00:01:17] by Eric Carter of FinancialFinesse.com. And I'm your host and personal finance enthusiast,

[00:01:24] Diana Merriam. Now let's jump right into our next post and start optimizing your life.

[00:01:33] What's Probably Missing From Your Financial Plan by Eric Carter of FinancialFinesse.com.

[00:01:41] When people call our financial helpline or schedule a one-on-one consultation,

[00:01:46] they usually have a particular problem or goal in mind. It might be getting out of debt,

[00:01:51] knowing whether they're on track for retirement, or dealing with a thorny tax issue.

[00:01:57] But sometimes we have people that seem to be doing all the right things.

[00:02:01] They have no high-interest debt. They have more than adequate savings for emergencies.

[00:02:06] They're saving enough for retirement. They just want to know what they might be missing.

[00:02:11] Here are the most common holes in people's financial plans.

[00:02:14] Number one, life insurance. Too often people just have whatever their employer provides to them,

[00:02:21] which is usually equal to their salary. The bad news is that if you need to provide income to

[00:02:27] dependents, this won't be enough. The good news is that if you're in decent health,

[00:02:32] a term life insurance policy is relatively cheap. For example, a 40-year-old non-smoking male with

[00:02:40] average health can purchase $500,000 of life insurance for less than $70 a month in California.

[00:02:48] The problem isn't that people don't know the importance of life insurance or can't afford it.

[00:02:53] The problem is that it's too easy to procrastinate. But doing so could mean that deteriorating health

[00:03:00] makes it unaffordable, or even worse, your family needs it before you purchase it.

[00:03:05] Number two, investment diversification. One of the biggest investment mistakes I see

[00:03:12] is having too much in company stock. This can come about by employees allocating too much of their

[00:03:17] 401k contributions into their company stock or because they have options or restricted stock

[00:03:24] grants that vested and they simply allowed them to accumulate. Either way, having more than 10

[00:03:30] to 15% of your portfolio in any one stock is extremely dangerous because unlike the market

[00:03:37] as a whole, an individual stock can go to zero and never recover. It's even more risky when it's

[00:03:44] your employer's stock because your job is already tied to your company. Company stock isn't the

[00:03:49] only way many employees aren't adequately diversified. Many just invest in a stable

[00:03:55] value fund, maybe some bonds and large cap US stock funds like an S&P 500 index fund.

[00:04:03] Other asset classes like international and small cap stocks are significantly underweighted or

[00:04:09] even completely neglected altogether. This can be a bad idea because those areas may significantly

[00:04:15] outperform large cap US stocks in the future. In fact, small cap stocks have historically

[00:04:22] outperformed large cap stocks over long periods of time and emerging market stocks have been

[00:04:28] outperforming recently. Of course, there's no guarantee that these trends will continue,

[00:04:33] but that's why it makes sense to have some eggs in all of these baskets.

[00:04:38] Number three, umbrella liability insurance. This little known type of insurance covers you

[00:04:45] in case of a lawsuit that exceeds the coverage provided by your regular auto and renters or

[00:04:50] homeowners policies. It can be especially important for anyone whose assets make them a target,

[00:04:57] but your future income could be attacked too. It generally only costs $100 to $200

[00:05:03] for that extra peace of mind. Number four, long-term care insurance.

[00:05:09] Just as we don't like to think about death, we don't like to think about having to spend time

[00:05:13] in a nursing home someday. But if we live until age 65, the odds are more likely than not of

[00:05:20] needing long-term care at some point in our lives. Since Medicare doesn't really cover it, you'd have

[00:05:26] to rely on Medicaid, which requires you to spend down pretty much all of the assets you've built

[00:05:31] up over your entire life in order to be eligible. That means not having long-term care insurance

[00:05:37] can effectively erase all the good saving and investment decisions you made. To avoid purchasing

[00:05:43] too little or too much insurance, see if your state offers a long-term care partnership program.

[00:05:50] If you buy a policy through one of these programs and use up all the benefits, you can qualify for

[00:05:55] Medicaid while still keeping an amount of assets equal to the insurance coverage you purchased.

[00:06:01] And number five, estate planning. Estate planning documents like a will, advance health care

[00:06:08] directive, and power of attorney allow you to make financial and health decisions or empower

[00:06:14] someone else to for a time when you're unable to, either through death or incapacitation.

[00:06:20] Once again, this is another topic we'd all like to avoid, and once again, this could be a big mistake.

[00:06:27] Imagine your family fighting over medical decisions for you, or over who should inherit what asset,

[00:06:33] or having to wait for months and pay thousands of dollars in legal fees while your estate goes

[00:06:39] through probate. Fortunately, you can get most of the basic documents done at little cost. However,

[00:06:45] you may want to have an attorney at least look them over to make sure there are no costly mistakes.

[00:06:51] Depending on your state, you may also be able to avoid probate on your bank accounts with a POD,

[00:06:57] or payable on death designation, and on investment accounts, vehicles, and real estate with a TOD,

[00:07:04] or transfer on death registration. Otherwise, you may want to hire an estate planning attorney

[00:07:10] to draft a trust. While these topics may not seem as urgent as paying down debt, saving for

[00:07:16] retirement, and reducing your taxes, they can be the most important part of your financial plan when

[00:07:21] you need them. The problem is that if you don't have them by then, it'll be too late. What are you

[00:07:27] waiting for? You just listen to the post titled, What's Probably Missing From Your Financial Plan

[00:07:37] by Eric Carter of FinancialFinesse.com, and I'll be right back with my commentary.

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[00:08:52] Looking to part ways with complicated, expensive, and uncertain shipping?

[00:08:57] Then give your business the edge it needs with USPS Ground Advantage shipping from the

[00:09:03] United States Postal Service. Keep everything simple with clear, upfront pricing and no

[00:09:09] unexpected surcharges. Keep things affordable with some of the lowest prices out there.

[00:09:15] And keep it all reliable with on-time ground shipments. It's time to turn shipping to your

[00:09:20] advantage. Learn how at USPS.com slash advantage. USPS Ground Advantage. Simple, affordable,

[00:09:30] reliable. Another thing that might be missing from your financial plan is considerations around

[00:09:37] aging parents. As our parents get older, their needs can change. And those changes often come

[00:09:43] with a price tag. You might find yourself shelling out for things like medical bills,

[00:09:48] home modifications, or even assisted living expenses. Plus, if you're stepping up as a

[00:09:53] caregiver, that could mean cutting back on work hours or even quitting your job altogether,

[00:09:59] which can put a dent in your own savings and retirement plans. Then there's the long-term

[00:10:04] care factor. It's not cheap. And if your parents don't have a plan in place for it, you might feel

[00:10:09] the need to help find a solution. On top of all of that, there's the whole financial management

[00:10:15] side of things. As your parents age, they might need a hand with things like managing their money

[00:10:20] or navigating government benefits. It's not just about writing checks. It's about making sure

[00:10:25] they're taken care of financially in the long run. So while it might not be the most exciting part

[00:10:30] of financial planning, considering your aging parents is all about being prepared for whatever

[00:10:35] life throws your way. That brings us to the end for today though. Thanks so much for listening

[00:10:40] all the way through, and I'll see you tomorrow where your optimal life awaits.