Print

At this time a year ago, there were still so many questions on all of our minds during pandemic life, chief among them about the virus and vaccines.

Next up was the resilience of the economy and the cascade effect on our financial security. With the biggest relief package in history, the economy proved resilient. But it serves as a good reminder of the wisdom of taking stock of one’s financial outlook, annually at a minimum. Mike Parry, president of Liberty Wealth Advisors in Stamford and the Fairfield County chapter of the Financial Planning Association, highlights what he considers the biggest boxes to check off in any annual financial checkup.

First and foremost: assets, liabilities and runway to retirement, yes?

A client shared this with me recently: the nine words to financial security are “work a lot, spend a little, invest the difference” — it’s as simple as that. There has to be some discipline in your life to make sure that you’re spending less than you’re earning. What are your assets and liabilities? Scrutinize your expenses. Make sure that you are doing a regular review of your credit report.

Getting a snapshot of what your overall assets are is definitely important, but it’s just as important to get a sense of what your overall allocation is to equities and how that aligns with your willingness to stomach risk. You’ve got to ask yourself, after a 10-year bull market essentially, are you overweighted in equities and if we have another big sell off in the stock market would you be able to handle it? I mean 50 percent. You say, ‘Wow, 50 percent, that’s never going to happen,’ but that’s not necessarily true. We’ve seen two 50 percent declines in the last 20 years. … Don’t fall in love with your stocks, because they will not love you back.

Debt — should refinancing be part of an annual review?

Interest rates are low. For folks who didn’t refinance in the last couple of years, there might be an opportunity to get a lower rate on a mortgage. Going with a 15-year mortgage instead of a 30-year typically is going to save you a little bit on interest and you are going to pay off the loan sooner. When it comes to credit cards, get rid of the high-interest credit card debt first; focus on eliminating that.

We are programmed already for taxes annually — anything new?

Refund checks are not getting processed as quickly as they have in the past. It was a problem last year, and it’s a problem this year and I don’t see anything on the horizon that’s going to make this problem go away anytime soon. If you had a big tax refund last year and you got your refund quickly, don’t assume that you are going to get your refund quickly going forward. I’ve had [clients] where it took them six to eight months to get their refunds. There’s no rhyme or reason for it — it has nothing to do with the complexity of your return.

What about 401(k) plans and other retirement assets?

There’s that knee-jerk suggestion that you want to maximize 401(k) contributions. But if you have financial priorities that involve a down payment on a house or a purchase of a car, when it comes to your ability to pull money back out of the 401(k) plan, you don’t have as many options as if you were to set the money aside in a savings account. A typical corporate 401(k) plan does have provisions for taking a loan, but trying to find that right balance between retirement and non-retirement assets is largely determined by what your short-term and medium-term goals are. Certainly, if saving for retirement is your primary objective, then you definitely want to maximize that contribution, and remember that the year you turn 50 you do get that catch-up provision for both 401(k) and IRA contributions annually.

How does the insurance equation change over time?

The purpose of life insurance is to replace the lifetime value of somebody’s working years. I tend to have a view of buying term life insurance and investing the difference, rather than purchasing whole-life insurance.

Disability coverage is extremely important for people who are in the middle of their working careers — frankly, more important than life insurance because there’s a higher probability of becoming disabled than getting hit by the proverbial bus. For folks who work for a company, the disability coverage that is offered is usually pretty good and you want to make sure that you maximize your coverage.

In terms of long-term care insurance, by the time you get to your mid-50s or 60s, it’s something that’s worth considering. Assisted living and nursing home costs are really expensive, and long-term care is something that we talk about with clients all the time, but it’s not cheap.

The types of policies that cover long-term care are evolving. There are policies now that are hybrid life and long-term care, so that you get either coverage, unlike a traditional long-term care policy where you have the potential of never using the benefit.

A typical liability policy in an auto and a homeowner’s policy is $500,000, although some folks may choose a lower amount. If your assets exceed that $500,000, you can buy an excess liability and umbrella policy typically from the company that you have your auto policy with. For a surprisingly modest annual premium, you can get $1 million in additional liability coverage, which if you’re spending any time commuting on I-95 it’s probably worth having.

Anything new to consider with respect to inheritance and gift taxes?

I would suggest that folks who have any assets definitely get a will — because if you don’t have one, the state of Connecticut does have one for you. Then there are ancillary documents that you want to have as well like power of attorney and a health-care proxy. 

In terms of gifting, the annual gift [tax] exclusion is still $15,000. The lifetime exclusion amount for federal coverage is about $12 million per person. Connecticut is [trending] to couple with the federal amount — there does not seem to be any change in the coming year that would impact that.

This article appears in the October 2021 issue of Connecticut MagazineYou can subscribe to Connecticut Magazine here, or find the current issue on sale hereSign up for our newsletter to get our latest and greatest content delivered right to your inbox. Have a question or comment? Email editor@connecticutmag.com. And follow us on Facebook and Instagram @connecticutmagazine and Twitter @connecticutmag.