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3 Financial Documents You Must Review Now

Before the new school year gets into full swing, review and update this critical information to help protect yourself and your family.

As the school year begins, it’s the perfect time for a personal finance tune-up—before you get too swamped with classroom demands.

That’s the time of year when Jefferson, Ga.-based teacher Danny Kofke meets with his financial adviser to make sure he’s on track with his savings. In fact, Kofke has learned so much in the process that he has emerged as somewhat of a guru himself on these topics, writing several books such as A Simple Book of Financial Wisdom: Teach Yourself (and Your Kids) How to Live Wealthy With Little Money and How to Survive (and Perhaps Thrive) on a Teacher’s Salary.

No matter how many personal finance books he sells, Kofke still likes to consult annually with a certified pro—if merely for an outsider’s assessment of how he’s doing. “You can review where you are and see if you need to make an adjustment,” he says.

Take the time now to assess these three critical pieces of financial paperwork:

Your 403(b) plan and/or retirement portfolio

Even if your employer is contributing to a pension, that may not be enough to fund your own worry-free retirement. You could be inviting unwanted risk if your personal investment mix isn’t right for you. Generally, it should be more aggressive in your early career, with a gradual shift over the years toward a conservative mix of fixed-income investments, bonds and stocks.

“Some teachers I know were nearing retirement a few years ago and lost half their savings due to the recession,” Kofke says. “Many school districts have advisers or resources available to employees to help them with their allocations.”

Basic money management can be a challenge for many people, and it’s difficult to figure out your retirement needs on your own. “Understanding stocks, mutual funds, bonds and fixed-income options can be overwhelming,” he says. “That’s why it’s key to get outside help.”

As a general rule of thumb, you should prepare to lose one-half of the value of any investments you have in the stock market during a major downturn, says Brian Frederick, a financial adviser based in Scottsdale, Ariz. That’s why your planning must take into account your current age and intended retirement date.

“If losing that much of your overall portfolio during a bear market is too much to handle, then it’s time to do something about the allocation—before it goes down,” Frederick says.

Every pay period, contribute at least the amount required to qualify for any employer match in full so you won’t leave any money on the table. Beyond that, consider upping your contribution incrementally as your paycheck increases.

“If you get a 2% raise, for example, try to adjust contributions so you invest 2% more of your total income,” Kofke says.

That may be difficult for some educators, especially if furloughs are pending. But any increase in contributions ultimately will lessen your tax burden by reducing your reportable income.

Frederick advises clients to push for a contribution totaling 10% to 15% of their overall income. “And if your debts are entirely paid off and you have three to six months in the bank for emergencies, you should aim to put in the maximum amount into your 403(b),” he says.

The maximum individual contribution for 2016 is $18,000. But if you’re 50 or older, you can make “catch-up” contributions of $6,000 above the limit.

“With the tax-savings advantage and the potential employer match, a 403(b) enables you to gain more value for your dollar instead of putting it into a regular savings account,” says Felix Malitsky, managing director of the MetLife Financial Group of New York.

For more articles and calculators that can help you figure out how much you need to save for retirement, check out the NEA Member Benefits Retirement Center.

Your life insurance coverage and beneficiaries

Frederick advises teachers and other clients to buy life insurance equal to five- to 10-times their annual salary. For most, this goes beyond what an employer would provide, so you’d have to supplement any life-insurance benefit plan with a stand-alone policy.

“But that can be cheaper than what your employer offers, especially if you’re a healthy non-smoker who can lock in the price for up to 30 years,” Frederick says.

As for how much to buy, “if you don’t have children and your spouse works, it can be on the lower end of the ‘five- to 10-times’ scale,” he says. “But if you’re the sole breadwinner and you have young children, it needs to be on the higher end.”

If you already have life insurance, take the time to review your coverage and your designated beneficiaries. This is especially important if you’ve experienced any personal changes, such as marriage, divorce or a birth.

Most NEA members are eligible for NEA Complimentary Life Insurance, issued by Prudential Company of America (Prudential). Click here to learn more and provide or update your beneficiaries. For additional coverage, our life insurance calculators can help you figure out what kind of insurance to get and how much you need.

Your will

Many people put off writing a will. Who wants to think about their own mortality? But everyone has to go sometime, and you certainly don’t want to be unprepared in case of an accident or sudden illness.

Kofke recommends hiring a professional lawyer to do your will. Sure, it’ll cost more than those “DIY” services that are readily available online. Although those services may (or may not) hold up in a court of law, Kofke cautions that you could get what you pay for: They’re unlikely to cover all the required bases.

“Some categories are obvious, like who will inherit your money and your property,” Kofke says. “But others aren’t so easy, such as what to do with your children if you and your spouse are killed in the same accident, in addition to how much money will you pass on to whomever will raise them. And if you have a business on the side—as many teachers do—you’ll need to map out what to do with that business if you pass on.”

Frederick agrees that a lawyer should be involved in the process to help resolve any sticky legal issues. In most jurisdictions, the will must be notarized and witnessed by two independent parties. And don’t forget to update the will whenever you have a change of status in your life.

“This includes not only life changes with your marital status and/or the birth of a child,” Frederick says, “but also whether you move from one state to another, as estate laws shift from one to the other.”

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