- Where is your money?
Is your money spread out in a lot of different places? You may think you are diversified but you may also own a lot of the same investments overlapped in several different accounts?
- Is your money accessible?
Often you will hear that you should have anywhere from 6 to 12 months easily accessible in an emergency fund. As a federal employee, you may also have access of up to $50,000 as a loan from TSP. It is critical that you can easily access an emergency account for an unexpected expense.
- Is your money allocated in alignment with your needs and goals for the next 5 years? 10 years? Beyond that?
Most of us have both short-term and long-term financial goals. A new car, home purchase or travel may be an example of a short-term goal. That money should be allocated to a safe financial instrument. College planning and retirement may be longer-term goals, and you may find yourself able to accept more risk because you have a longer timeline.
- Do you know how much risk you are taking and if so are you comfortable with the amount of risk in your portfolio (TSP, IRA’s, etc.)?
It is very important to know how much risk your portfolio is exposed to. It is vital to make sure your risk level falls within your comfort zone and to be aware of the probability of your maximum gain along with maximum loss.
- How much of your money is fully exposed to future taxes?
Your tax deferred retirement account such as your TSP account value is shared with a silent partner – Uncle Sam. How much of your retirement account belongs to your partner, little old Uncle Sam?
- What would happen if you or your spouse (if married) were no longer able to work because of a disability?
Do you need your full income to get by? Do you have a disability policy? This is one of the few benefits that the federal government does not offer its employees. Many feds accumulate sick leave and hope that it will be enough for a short-term disability, while others go to the private sector for disability insurance. The government does have Retirement Disability, which is different from a disability policy and would require that you leave government service.
- What professional do you consider your primary financial advisor?
There are some very good financial advisors out there as well as some not so good. Federal benefits can be complex and you will want to make sure that you are working with an advisor that can help you maximize your benefits and coordinate them with other planning alternatives. I have seen many times a federal employee that took advice from a financial advisor that did not have the knowledge of federal benefits and caused more irrevocable harm than good.
- How well does your financial advisor know you and you them?
A true financial relationship with a professional requires them to know you very well, not just from a financial perspective but real core values and life objectives. The more you know each other the better an advisor may be able to put together a sound financial plan that can meet your goals as well as be flexible to deviate from them should that become necessary. The better you know the financial advisor the more comfort level and trust factor you will have.
- What is your debt structure?
Is it manageable? If your debt is preventing you from reaching other life goals then a debt reduction plan is a must. Credit card debt is over 854 billion in the United States, with very high interest rates in a low interest rate environment.
Determine what your debt-to-income ratio is. In most cases a 43% debt-to-income ratio is the highest ratio a borrower can have and still qualify for a qualified mortgage.
- What would happen to your standard of living if your spouse passed away, or your spouse’s standard of living if you passed away?
If you are still in your earning years and are not prepared financially for retirement make sure you have enough life insurance. In the event of an unforeseen death, the consequences can be devastating to a spouse and family.
Life insurance in retirement may also be needed. Even if you elect a full survivor pension for your spouse, that may not be enough. Full really means 50% for FERS and 55% for CSRS. In addition, one of your Social Security benefits would go away.
About the Author
Carol Schmidlin is the President of Franklin Planning and has been advising clients on how to grow and preserve their wealth for 20 years. In addition to her financial planning practice, she is the founder of FedSavvy® Educational Solutions, which provides Financial and Retirement Literacy Programs for Federal Employees. Follow FedSavvy® Educational Solutions on Facebook for the most up to date information. Contact Carol at (856) 401-1101 or visit FranklinPlanning.com.More from this author »