Preparing for the Future

Herb White, a certified financial planner and founder of Life Certain Wealth Strategies in Denver, helped the Woodens develop a financial plan.

Delay retirement and increase contributions. Jason and Carol want to semiretire in the next 15 years. However, it would be more realistic for them to delay retirement by an additional 15 to 20 years, while increasing their contributions to their employer plans to the maximum amount. Carol’s 401(k) is comprised of 85% stocks and 15% bonds. White  suggests diversifying the portfolio by also investing in domestic and international index funds or exchange traded funds because they are low-cost investment vehicles. White recommends that Jason’s 403(b) portfolio allocation should be 80% equity and 20% bonds.

Jason has a total of $11,000 in his 403(b) from his previous and current employer; still it is important for him to make every effort to contribute the maximum amount each year. It is also important for Jason to work on his fear of investing and take on a bit more risk. White suggests that Jason diversify and consider investing in stocks. The $2,000 contest winnings should be used to build up Jason’s retirement fund.

Develop an estate plan. The couple should hire an attorney to draft the appropriate trust and wills so that their wealth can be distributed appropriately in the case of divorce or when they die. It is also important for the couple to name guardians in their will in the event that both of them pass away while their child is still a minor. They should also re-title their rental properties into a trust so that they can protect those assets. White says if the properties are titled in their own personal names, they’re accessible by creditors or through litigation.

Purchase liability and long-term disability insurance. White suggests Jason and Carol purchase an umbrella liability insurance policy and additional business insurance to protect their assets in the event they are sued. “With a bartending business, the potential for a liability lawsuit exists. It would be wise to get coverage just in case someone who was drinking at one of these functions got into a car accident and then said that the company was at fault,” says White. An umbrella policy, which can be added to their homeowner’s insurance policy, would protect the couple if they’re named in a lawsuit. Premiums are anywhere from $150 to $300 per year for $1 million worth of coverage. White suggests that they obtain about $4 million to $5 million in coverage. The couple should also purchase long-term illness insurance to cover them if they experience a lengthy illness or become disabled.  They should also add an additional $500,000 for each of them in life insurance.

Open a 529 savings plan. The Woodens should open a 529 savings plan so they can start saving for their child’s education. A portion of their rental income should be applied toward the plan.