Evaluating Your Financial Well-Being and 4 Tips to Get Ahead

By Adam Taggart, CEO & Founder of Wealthion

How long has it been since you evaluated your financial picture and updated your plans to reflect changes in the economic and political landscape? With swirling headlines on inflation, high-interest rates, job losses, and failing banks, it’s easy to get dissuaded from tending to your financial future and get by on autopilot, letting our current financial habits continue unabated. A “set-it and forget-it” mentality might help those who tend to be too highly reactive to market swings, but it can also lull many of us into complacency. If you have put a sound financial plan in place, but want to ensure you are getting ahead, this article will provide four tips to spur action and jump-start your finances.

Tip #1 – Policy-proof your retirement plans 

Did you initially plan your retirement savings based on calculations that factored in the amount you expect to receive from Social Security? Have you envisioned Medicare replacing your employer-sponsored health care at a similar cost? You may want to write those entitlements out of your plans. The Social Security and Medicare trusts are expected to be insolvent within the next decade.

Does this mean that these programs will be gone when you retire? Probably not. Congress will likely act to ensure the programs remain viable, but the benefits could be slashed, and the age you are eligible for benefits may increase.

You’ll be better prepared if you can write these programs off from your retirement plans altogether. Eliminate the risk that policy changes amid demographic pressures rob you of the ability to retire on your own terms. Plan for the worst, but if the programs do survive, then all the better – you will have more discretionary income in retirement.

If you can’t increase your retirement contribution rate enough to make the numbers work now, you may still be able to lower your reliance on Social Security. Start by planning on delaying your benefits to age 70, when the amount you receive from Social Security will cap out.

For a full exploration of the factors to consider when taking Social Security, watch our interview with benefits expert Mary Beth Franklin below (or go here to watch on YouTube).

In contrast to Social Security benefits, you will want to apply for Medicare as soon as you are eligible (coverage costs increase with age). Medicare coverage at its current levels, though, won’t be sufficient to cover all your medical costs. Any further reduction in benefits may leave you on the hook to cover hundreds of thousands more in medical bills in retirement. At a minimum, plan to pay for Medigap or supplemental insurance. Building savings in a Health Savings Account can be another option to set aside tax-deferred dollars specifically for medical costs (though investment options in HSAs may be limited compared to IRAs). Long-Term Care Insurance should also be considered when policy-proofing your retirement plans.

Tip #2 – Up your investing prowess 

Smart investors emphasize investing in what you know. But this isn’t an invitation to ignore a larger world of profitable investments. It doesn’t matter what age or stage you’re at in life, you are capable of expanding your financial knowledge base. Adding to your investing skillset can help you protect the assets you’ve already accumulated while using those assets in new ways to help you get ahead.

Often, individuals begin investing in a target date retirement fund or a basket of mutual funds or ETFs. As your nest egg grows, you may begin holding a basket of individual stocks – usually blue chip stocks of US companies and rightly embrace the philosophy of long-term investing.

Incremental portfolio income 

If you want to get ahead as an investor, though, it may be time to find a few more opportunities and learn different strategies to generate income. For instance, if you have accumulated a basket of stocks, you can generate additional income through options trading or securities lending.

If you are new to options trading, it may seem risky, and options strategies do have risk. But some options strategies actually lower certain risks. Options can dial in our portfolio to a more specific risk/return profile. To get started, talk with your professional financial advisor to see if a strategy of writing covered calls on blue chip stocks in your portfolio may be a way to generate some income without taking unreasonable risks.

Securities lending allows investors to loan out securities and earn passive income. The stocks and bonds that can be lent out depend on the demand for the individual security. Check with your broker to see if lending securities is an appropriate option for you.

Expanding horizons

Many investors embrace the relative safety of US stocks, often relying on the company names we know. But some opportunities with the highest growth potential are found outside the US. Global economic trends and maturing financial sectors can favor investors familiar with the markets in Mexico, Brazil, Columbia, and other Latin American markets.

Investors can obtain exposure to emerging and frontier markets through mutual funds and ETFs, which are perfectly suitable investments to get started. Once you are familiar with a market and its opportunities and risks, you can obtain direct exposure to emerging market companies by investing in American Depository Receipts (ADRs), which trade like stocks on US exchanges.

Tip #3 – Cover your assets

Our insurance coverage needs change over time, but we rarely update our policies to reflect our current circumstances. If you haven’t examined your insurance coverage and costs in a while, it’s time to reevaluate your needs. Start with your risks – what are the risks related to your health, home, car, income, and portfolio? 

If you already have insurance coverage, review your policies to make sure they still meet your risk tolerance. You may need to adjust your coverage levels or add additional types of insurance to ensure you are adequately protected. You may find coverage you no longer need and can eliminate.

Homeowners insurance is a policy that’s too often overlooked. Review your coverage levels regularly and shop around to ensure you are paying a competitive price. Compare insurance policies from different providers to find the best coverage and rates for your needs. If your net worth has grown, consider whether you can afford a higher deductible now.

You may also want to re-evaluate your life insurance needs as your children grow and as your expenses change.

When seeking insurance savings, always consider the reputation of the insurance company. A dirt-cheap premium may end up costing you more in the event you need the insurance and a less-reliable insurance company is slow to pay or difficult to work with, in your time of crisis.

Covering cash assets

Recent bank failures point out how vulnerable our perceived safe havens actually are. In this latest crisis, some major banks like Charles Schwab experienced significant scrutiny and plummeting stock prices, sparking widespread concern over the bank sector.

It’s scary to think our cash savings could be in jeopardy. One option to reduce our worries is to keep some of our cash holdings in brokerage accounts instead of banks. Brokerage securities are segregated from bank assets, so the money is not susceptible to the same runs as bank deposits. Plus, brokerage accounts will often utilize money market sweep features, meaning our cash can earn much more than deposits in a bank account. In the case of a brokerage firm failure, brokerage accounts are insured by SIPC (up to $500,000 for securities and $250,000 for cash).

Tip #4 – Get tough on taxes

Death and taxes, the cliché goes, are all that is certain. If you have doubts about the certainty that taxes will erode your earnings, a study by financial firm Self calculates that the average American will spend about a third of their lifetime income on taxes.

While it is advantageous to minimize your tax bill each year, it may be more important to consider your lifetime tax liability if you want to get ahead. Instead of investing in a traditional IRA or 401(k) exclusively, consider putting at least some money in the Roth option to reduce the risk of higher tax rates in retirement. If you believe you will be making more money in the future, it’s worth exploring the option to convert your traditional IRA assets to a Roth IRA – you’ll need to pay taxes on the conversion now, but it could save on taxes down the road when you are in a higher tax bracket.

Saving taxes on our investments doesn’t end with maximizing our tax-deferred savings. Nothing can spoil robust shareholder capital appreciation faster than government policy (think about the recent energy windfall taxes in Europe). When evaluating investments, consider the headwinds that taxes may create for the company, industry, or country.

For an eye-opening discussion on all the ways a proactive tax planning approach can dramatically reduce your tax footprint, watch this interview with accounting expert Tom Wheelwright.

Investing in our financial literacy

If you want to get ahead financially, don’t rely on the status quo. Incremental improvements to financial plans require learning new skills. If you’ve reached a plateau or need support to take the next step, don’t hesitate to seek the help of a financial advisor.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

By Anisa