Your Financial Planning Checklist

by NEA Member Benefits

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If you feel intimidated by the prospect of financial planning, try breaking it down by the stages of life, with certain tasks to master in your 20s, 30s, 40s, 50s and 60s. 

Here are some of the things to think about in different stages of your financial life.

Twenties

The two most important financial tasks in your twenties are to get started in a career and to start saving something. “The biggest mistake people make is to put off saving,” says Judy Shine, a financial planner in Denver. “They don’t realize how much more they will have to save if they wait until they are in their 40s or 50s.”

  • Save, save, save, even if it's only $25 a month to start. Put it in a tax-deferred retirement plan to get the most bang for your buck.
  • Establish credit in your own name.
  • Pay off student loans and other debts. With the average credit card carrying an interest rate of 18%, paying off debt is your best investment.
  • Set up an emergency fund.

Thirties

Think about whether you’re living where you want to, what you want to do and how you will accumulate the money to accomplish it. Your 30s are the time to throw your dream net wide as you build a strong foundation: find a partner, start a family, build on your career, buy a home and continue to put money aside.

Cynthia Meyers, a financial planner in Sacramento, suggests writing down your goals and reviewing them each year. “They should include everything about your place in the world—spirituality, family, friends, your work,” she says. “Now is the time to develop good habits that will last your lifetime.”

  • Set up relationships with the financial professionals that you will need, like an accountant, a lawyer, a financial planner, a real estate agent.
  • Get a handle on your cash flow. Figure out what you’re spending and where you might be able to cut back.
  • Purchase a home.
  • Buy renter’s or homeowner’s insurance.
  • Buy disability coverage to replace your income (if not a part of your benefits package provided by your employer). Get a policy that is renewable to age 65.
  • Make certain you have good health coverage in place.
  • Check into employer-provided flexible spending accounts; this is where you pay for health care (not covered by insurance) and dependent care expenses with pretax dollars.
  • Organize a file box and set up a record-keeping system.
  • Contribute to a 403(b) or other tax-deferred retirement plan.
  • Invest your retirement contributions in stocks. A stock index fund or a fund that invests in large-company U.S. stocks is an ideal starting place.
  • Contact the Social Security office at 800-772-1213 and ask for Form SSA-7004, the Request for Earnings and Estimated Benefits. It is important to check your earnings every three years. The Social Security Administration will not correct a mistake older than three years.
  • Draw up a will and, if you have children, name a guardian. Set up a health care proxy and name someone to make health decisions for you if you become incapacitated.

Forties

Build on your foundation. “When you turn 40, you begin to focus on what is really important to you,” Meyers says. Sometimes, that makes the 40s a time of recreating or of starting fresh. Rethink your goals and focus on what you will do to accomplish them.

  • Set up a home equity credit line for emergencies. The rates are lower than credit cards and the interest is tax deductible.
  • Plan a special vacation and start setting money aside for it.
  • Review your record-keeping system. Be certain to keep good records on investment assets—like stocks or mutual funds—to show what you paid for them. The same is true for your house. You should keep the purchase contract and records of any improvements that you have paid for. 
  • Add to your investment portfolio.  
  • Think about what you will have—and what you will need—in retirement, and about the age you want to retire.
  • Think about how marital assets are titled.

Fifties

“When you are in your 50s, you see the end more closely,” Meyers says. Yet you still have plenty of time to implement your dreams.

“Fifty is not too late,” says Mary Merrill, a planner in Madison, Wisconsin. “A lot of people give up when they’re in their 50s. But you still may have 30 years or more to realize your dreams.” This can be one of the most satisfying times of your life. Think now about building a legacy in some way—through your children or a business or a charity. “I counsel people to write down what their lives are about and what they want next,” Meyers says.

This should be a time to cash in on some of the investments you’ve made, both financial and psychological. For many people it can mean a time of new beginnings with the confidence that comes from experience and wisdom.

  • Think about a second home or retirement home. If you will retire in the home you now have, consider paying off the mortgage. “Eliminating debt can free you up in retirement,” Meyers says.
  • As income goes up and expenses go down, divert extra cash into savings.
  • Look into long-term care insurance. “People are living longer and dying slower,” says Deena Katz, a financial planner in Miami who has written a book on the subject. Before age 55, the risk is very small. A 1996 law made the premiums you pay on long-term care insurance tax deductible.
  • Look at the rules to qualify for the $125,000 exclusion on capital gains tax for the sale of a personal residence when you are over the age of 55. You must live in the house for 3 of the 5 years before you sell. And the exclusion is available only once. That means if you marry someone who has already used it, you are not entitled to it. This is an important consideration if you are considering remarriage.
  • Consider tax-free investments like municipal bonds if you are in the 30% tax bracket or higher.
  • Keep the bulk of your portfolio in stocks. Add specialty investments like natural resources, real estate or other inflation hedges.

Sixties

It’s time to cement your plans for retirement. Think about what you will do and how you will pay for it.

  • Keep some of your retirement money in stocks. You are likely to live many years in retirement. You need the growth to keep pace with inflation.
  • Check with the Social Security office for benefits estimates.
  • Start now to work on projections for retirement income.
  • Find out how much you can expect in pension income, if any.
  • Get benefits statements from your employer.
  • Update wills trusts and complete estate plans.
  • Look at the options for withdrawing money from retirement accounts.

Every decade of your life can be a wonderful time—a time to reevaluate goals and to make new beginnings. That’s true even if you’ve created the life you love. “Never be afraid to dream dreams—and to pursue those that are really important to you,” Meyers says.

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