Friday, February 6, 2015

Financial Planning – Part 4 – Asset management

One of the first things I did, even before meeting with my newly chosen financial advisor, was put together spreadsheets listing assets and liabilities (and calculating my net worth), and my income and expenses.  Besides writing them all down in one place, I had to make a number of decisions on how to handle them.

Our house

We built our house in 1977 and had made many improvements to it over the years.  But we paid off our mortgage in 1995, a year before our oldest son went off to college.  But I had taken out a home equity line of credit which I had used to finance many of the improvements.  So to be debt free I needed to pay that off.  I paid it off by cashing in the smaller insurance policies I had, and by selling all the US Savings Bonds that I had bought during the years when the company offered them at work (1992-2000).  This made me debt free.

Since then, one other change has been made to the house.  One of the major additions we had made was to add a second story to the garage wing of the house that could eventually be used as a “mother-in-law apartment.”  There was a separate stairs and entrance at the back of the garage and it was set up to contain a separate kitchen and bathroom, making it pretty self-contained.  There was also an access door to it from the second floor in the main house. 

However, since both my and my wife’s parents remained in their own homes until near the end of their lives (three of the four died at home, only my wife’s mother went into a nursing home for the last year of her life), we never used it as an in-law apartment.  Instead, when our daughter got married, she and our son-in-law began living there and they have now added four grandsons to the household.  So not only are they using all that space, but they have taken over the upstairs room that has the access door.  The boys are now getting bigger and the youngest two are outgrowing the crib and bassinet they are in, so we are converting one of the downstairs bedrooms to a new master suite for my wife and I.  This will give our daughter and family an additional bedroom upstairs and give my wife and I single-level living, a good thing to have as we get older and navigating the stairs gets more difficult. 

Insurance

Besides the smaller policies I sold to pay off our home equity line of credit, I still have the policy that I bought upon graduation from college over 45 years ago.  The policy is with a mutual company, so the means that annual dividends are distributed to the policy holders instead of to stock holders.  I’ve been using these dividends to pay my annual premiums for the past two decades, so the policy basically pays for itself.  As the premiums get larger with my aging, it recently passed the point where the dividends are large enough, so my cash value will slowly decrease in the coming years.  But I bought it as insurance, not as an investment, so I will keep it that way for the near future.

As I mentioned earlier, we also each have long-term care insurance policies.  These are not designed to pay for all the costs in the event that either of us needs to go into a nursing home, or needs home health care, but they will provide a base level of support.  My daughter, who still works in the LTC industry, tells me that they are good policies to have.

Other Assets and Liabilities

Part of my retirement package was the continuation of my health insurance until the age of 65 when Medicare would kick in.  I’ve discussed how I made the decision on what to do about Medicare in another blog post, so I won’t repeat that here.

Although my IRA is technically another asset, I’m going to discuss it under the income part of our finances, since that’s one of the sources of income post-retirement.

Chief Learning


Planning for retirement is not just about income and expenses, your assets are important too

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