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The First Step in Retirement Planning is to Organize Your Finances

Did you know that more than one-third of homeowners who have a garage can’t even find room to park their car in it? Unless these people deliberately designed their garage for something other than their vehicle (like a home gym), it’s safe to say they probably need some help getting organized.

Now, your garage might be in great shape (no judgement if it’s not), but we mention these garage stats to make a point about organization systems. If your current financial organization system isn’t functioning in a way that you can easily access it and see where you stand, it will be challenging to create a successful retirement plan. We always say that the first step in retirement planning is to organize your finances. Why? Because you need to know what you own and what you owe before you can set goals for the future.

Why it Can Be a Challenge to Organize Your Finances

Financial organization systems can easily falter. For example, you may forget to record transactions when you have to make a quick decision – like jumping on stock tip or buying a CD with a high rate. And for anyone who has worked at more than one job, there’s a chance they left a 401(k) behind. There are approximately 29 million forgotten 401(k) accounts holding assets in excess of $1.65 trillion.1 What happened to the 401(k) plans from your former jobs? If you’re not sure about the balances on those 401(k) accounts or you don’t know how to access them, it can be hard to organize your finances.

We recently met with someone who found an old retirement plan that had close to $100,000 in it. Another person discovered a forgotten pension plan that had a payout of $1,800 a month. That’s an extra $20,000 per year! But even if you don’t unearth buried retirement treasure, it’s necessary to document all assets and debts. Financial organization is a required step to get a clear understanding of your current financial picture.

The Perils of Poor Financial Organization

If you don’t properly organize your finances, you may experience negative consequences down the road. Here are some examples of poor or lax financial organization:

  • We’ve met with people who own multiple IRA accounts (rollovers from past employer plans). Imagine the difficulty – let alone the headache – of trying to manage the investments for each individual account.  Account consolidation provides a clearer picture of what you own and makes it easier for you or your advisor to manage your assets.
  • Have you revisited your beneficiary designations after the IRA rollovers? Some of your beneficiaries may not be up to date. It would be tragic if something were to happen to you and you forgot to include your wife or children as beneficiaries.
  • Have you set up a trust? Be aware that any assets you fail to title to the trust will be exposed to probate – a huge burden for your heirs.
  • Do you know the value of your estate? If you live in Illinois, you won’t pay a state tax if it’s valued at $4 million or less. But go over $4 million – even by $1 – and you’re required to pay tax on the entire value – not just the incremental amount above $4 million. Keep regular tabs on your estate value, and you may have opportunities to avoid a huge tax bill.

It’s Easy to Organize Your Finances with Our Free Tools

Most people intend to get organized but feel overwhelmed and unsure about where to start. If that sounds like you, we want to help! The Alpha Wealth Group offers free worksheets that can guide you through the organization process.

Our Get Organized packet includes our Asset Organizer and Budget Worksheet. Once you fill those out, you’ll be one step closer to creating your retirement plan. We’ll review your information and use our proprietary analytical tools to discover if you’re in good shape to meet your financial goals in retirement. The consultation is free of charge and there’s no further obligation.

To learn more about Alpha Wealth Group and our financial planning process, give us a call or send an email. We’re happy to answer your questions. And if you’re ready to get started on your custom plan, you can schedule a time here.

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This post is a summary from one segment of a recent Alpha Wealth Hour radio program. Visit our Media page to listen to full episodes from recent weeks or to find out where you can tune in to hear upcoming shows.