What Do We Do Now?

As 2009 finally comes to an end, the events that we endured will be with us for years to come. Bank failures, corporate corruption, stock market declines and a changing political landscape have all had a dramatic economic impact on all of us. The number one question I receive as an advisor is “What do I do now?”

As I write this article, the major indices are positioned to have a very dismal year. The Dow Jones industrial average, the Nasdaq, the S & P 500 and international indices are all off over 30 percent. How do these returns impact your current financial plan?

What do you do now? You first need to start with a thorough, well constructed, customized financial plan. If you’re currently in retirement without one, my recommendation is to get one! Find a full-service brokerage firm that can put together a financial plan that addresses the following areas in detail.

1. A net worth statement that addresses your assets and liabilities.
   The key here is that no debt is good debt, and you should know where all of your money is.

2. Estate planning
   Do you have the appropriate documents in place? What happens to your loved ones if something happens to you? Is there a way to avoid unnecessary taxes?

3. Capital needs analysis (i.e., insurance)
   Have you properly provided for your loved ones in the case of an untimely death? Everyone thinks about death, but what about disability? Both short -and long-term disability could have a tremendous impact on your finances.
   Have you begun to think about long-term care? With the average cost of a nursing home well over $6,000 a month, can you afford to receive the proper care?

4. Retirement income needs
   This is the most critical component of a financial plan. How much will you need and where will it come from? Having your income stream on paper will help confirm these two questions. What potential impact will living longer, inflation and the stock market have on your income?

5. Portfolio evaluation
   Where are your current assets invested? Are your current investments meeting your long-term goals? The key point here is that if your current portfolio was all cash, would you buy every investment you currently own? If the answer is no, then you should consider selling those that don’t fit.

6. Recommendations
   An excellent plan will provide you with a list of written recommendations that you can begin to implement. The key point in the recommendations is that a successful financial plan takes time to build and can’t be done overnight.
   In light of the recent market volatility, if you already have a financial plan, it may be wise to get a second opinion. Remember, you only retire once, and unlike golf, there are no mulligans or do-overs.

The brokerage firm that you choose to work with should be a full-service firm that offers an array of investment products including stocks, corporate and tax free bonds, mutual funds and insurance products. There should also be a variety of account platforms, such as the traditional brokerage accounts, fee-based and managed portfolios. Your investment objectives should be evaluated on an individual basis and customized to meet your specific investment needs.

Your plan should also consist of:

• Short-term goals (0-3 years: items such as a car, new kitchen, furniture or a vacation). These funds should come from a savings or money market account and should have a high rate of liquidity and a low rate of return and risk.

• Medium-term goals (3-20 years: a new home or a child’s education). These funds should be directed to growth-oriented investments that outpace inflation and can increase your investment over time

• Long-term goals (20+ years: your retirement security). These assets will provide additional income in retirement. Income you need tomorrow will definitely be more than what you need today. Your retirement income needs to address all of the retirement risks—longevity, inflation and the stock market.

These are definitely tough economic times we are facing, and having a solid financial plan won’t shelter you from the turbulence, but it will keep you focused on the long-term goals you have established. If you are currently retired without a plan or perhaps you would like a second opinion on your existing plan, please call my office at (412) 258-1101.

Kevin C. Krul is First Vice President and Financial Advisor with Hefren-Tillotson. He may be reached at 412-258-1101 or kkrul@hefren.com. The Wexford office of Hefren-Tillotson is located at 4001 Stonewood Drive.