Planning (financial, estate, insurance, and other) steps must be tailored to make sense for each different phase of your life. Although we each wind through life milestones in our own unique order, identifying how planning typically changes over time, will help you identify steps you might want to take now, or reconsider in the future. Too often people assume "estate planning" is only for the 60 and over set. There is no age barrier to planning, and its about much more than just wills. Here's a few practical ideas for those under 60:
20s - Too young to plan, so you do nothing? Big mistake!
o Terri Schiavo was in her early 20s when tragedy struck. Get a living will and health care proxy.
o You may not have much by way of finances, or legal complications, but you should at least sign a durable power of attorney naming a parent or someone else to act if you are unable to. Whether you're back-packing through Indonesia, or just off to college, someone back home should have the authority to take care of tax, legal and financial matters for you.
o Communicate key passwords, account information and other private data to a trusted person in the event of an emergency.
o Get liability and property insurance. Don't ignore insurance, as too many young people do, because your belongings are not valuable. If you own a car, or rent an apartment, you face liability risks. Get insurance. You also need the coverage to protect your belongings.
o Living with someone - it may seem like nirvana, but if it doesn't work out it could be a mess. Who keeps the car? Who has the liability for that 5 year lease you signed? Prepare a living-together- agreement that addresses key issues you might face if the relationship falters.
o Start saving today! Invest the maximum amount in your IRA every year from when you first start working and those simple contributions, invested and compounded, will be worth a tremendous amount in the future. Save now. Even if it's a little. Get into the habit.
30s - Life is simple, focused on career and other issues, but don't forget finances.
o Get a personal excess liability insurance policy to cover your auto, home/apartment and other risks. You're probably starting to save and build up your assets. You need to protect them with more than just the basic coverage.
o Buy disability insurance if you don't have it. If the cost is a burden, lengthen the waiting period, but don't go without coverage. The risk of a long term disability is substantial as you start to enter prime earning periods.
o At this point, if you haven't signed a will, hire a lawyer and have a will prepared that addresses your current, and near term anticipated changes.
o Take steps to protect your children: Trusts, college savings, and emergency medical forms are a good start.
o You likely need life insurance to protect a spouse and/or children. Be sure you have enough coverage to really provide the protection they need. Remember, if you want the principal to remain intact (e.g., pay "income" to your spouse and on his/her death leave the principal to the kids) your surviving spouse or partner can only withdraw about 4% a year if the remainder beneficiaries (e.g., your children) are to inherit an inflation adjusted principal value. Do you really have enough coverage? To avoid state estate tax, possibly federal estate tax, risks of your surviving spouse's new partner, etc. be sure your life insurance is owned by a trust.
o Your assets may be modest, but you're likely to want to protect them from lawsuits and claims (perhaps at this stage you own a couple of cars, have a house and a business, all of which create exposure). You might be able to own your house jointly with your spouse and thereby have some protection from either of your creditors. Consider funding an IRA, even if non-deductible, since the assets in the IRA are protected from lawsuits.
o Review the structure of your professional practice or business and be certain that the structure provides protection from your personal assets and that you have systems in place so that formalities are adhered to. Don't let growth detract you from vital administrative matters.
o Don't neglect your retirement planning. Even if you're strapped putting money away for kids' college and paying the mortgage on your new McMansion, salt something away.
40s - You realize the Cleaver Family was only a TV show: You're on your second marriage, your adult son just moved into your basement, and you're dealing with aging parents.
o Be sure your parents have signed at least living wills and health care proxies so that you, or your siblings, will be able to help them when necessary.
o It's a touchy subject but make sure your parents are managing their finances. If they get taken for a ride by one of the many hucksters out there, you may end up supplementing their resources (instead of your retirement).
o So now that you've been through at least one divorce, or you have at least become more realistic about the odds for your kids having a divorce, call your attorney back and re-write your will to bequeath assets in lifetime trusts rather than outright once your child reaches some specified age.
o Re-evaluate your investment allocations as part of an overall financial review. A mile-high overview and reality check is important at every life phase. If you're surprised to find that you won't be able to retire at the age you thought, or the age your parents did, you may want to shift towards a more aggressive investment posture if your time horizon is in fact longer, and to meet your benchmarks.
o Secure a home equity line to provide emergency cash. By this stage of your life, you've likely built enough equity that this can be a great resource in an emergency (no, not to pay for that trip to Tahiti!). This might enable you to put otherwise idle cash balances to better use (i.e., more fully invested for retirement).
50s - You realize that you really do want to retire one day; Estate planning is real and long term care insurance is a major cocktail conversation topic; You have accumulated assets and want to protect them.
o Yes, its time to start thinking about long term care insurance. Evaluate the options and what really makes sense before committing. Take your time to get through the puffery to see what the real facts are.
o Now that you have a comprehensive will and estate plan in place (yes, you need a "plan" even if they repeal the estate tax) consider the benefits of a revocable living trust. This can be a tremendous technique to manage and control your assets if you become disabled or subject to a long term illness (the probate avoidance issues are often over rated).
o Review all your insurance coverage and needs. If you're in prime earnings years, be sure life and disability coverage is adequate. If you've accumulated substantial savings, perhaps disability insurance may no longer be as necessary.
o If you have a professional practice or closely held business, create a viable succession plan (bringing in an associate, a buy sell, merging with a bigger company, etc.). For example, while you might have simply relied on insurance when you were younger in your career, that insurance becomes more costly, and your practice or business may have grown to the point where a more sophisticated plan is appropriate.
You'll face your own unique timetable and planning needs, but they will change over time and will need to be re-evaluated and updated.
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