5 Moments When Your Investment Strategy May Need a Reboot

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Expectant and excited parents!
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By Rebecca Reisner

It goes without saying that sometimes life, well, happens.

It could be that you're joyfully expecting the birth of your first baby, or reeling from something unexpected (and less happy), like losing your job.

Perhaps it's simply that you've moved onto a new phase in life -- be it that you're becoming an empty-nester or inching ever closer to retirement.

Whatever it is, big life changes can bring on the need for equally significant financial adjustments.

Once you've had time to process what's coming, it's natural to begin thinking about all of the money moves you have (and haven't yet) made to date that could help set you up for success in this new chapter of life.

Do you have enough in savings? Should you consider buying a bigger -- or smaller -- house? Is it time to sit down with a financial pro and review your investment portfolio?

To help you navigate some of the most significant life-changing moments, we spoke to certified financial planners for their thoughts on how you may want to reboot your finances for what's to come.

Life Changer No. 1: You're Expecting a Baby

Considering that the average cost to raise a child now clocks in at over $245,000, it's safe to say that this milestone tops our list of moments in life when your finances could probably use a reboot.

Step 1: If you haven't already started estate planning, and named a guardian for your baby, now's the time.

"You don't want your child to end up a ward of the state if you [and your partner] should die," says Michael Goldman, a certified financial planner and founder of Goldman Financial Planning in Falmouth, Maine.

And while we're on the topic, you should also give thought to life insurance, which can help take care of your child should something unforeseen happen to you. A policy that's active and in good standing can make up for your lost income, as well as help provide for your family's future living and educational expenses.

Step 2: Your next new-parent to-do is to consider starting a college fund when your little one is still in diapers.

You heard right. That early.

According to FinAid, if you start socking away for college with the birth of a child, the money saved during that first year could be worth about five times as much (assuming a 10% return) than if you were to begin saving the year before your kid heads to college.

Similar to a 401(k), a 529 college savings account enables you to funnel up to $14,000 a year, per parent, into a tax-deferred account. And although you can't deduct the contribution from your federal taxes, you won't owe taxes on the growth -- as long as it's used for qualified educational expenses.

Life Changer No. 2: You Nab a New Job -- or Lose One

If you're like many people riding the high of scoring a new, higher-paying gig, your first inclination may be to book a trip to Rio or upgrade your wheels.

And that's exactly why now's a prime time to take another look at your investment game plan before that first fatter paycheck hits your checking account.

"It's actually an ideal time to raise your savings because you won't even notice it," adds certified financial planner Chuck Roberts, founder and CEO of Financial Freedom Planners in Richmond, Virginia.

Step 1: Aim to create a plan that enables you to use 10 percent of your extra income for indulgences -- and earmark the rest for paying off debt, padding your emergency savings, and investing for the future, suggests Goldman.

And be sure to also think about new I.R.S. implications, particularly if your salary now bumps you into a different tax bracket.

For example, you can consider contributing a greater portion of your paycheck into your 401(k) plan, especially if you're eligible to receive an employer match.

"The 401(k) max is $18,000 for the year," Roberts says. "And the truth is that most people aren't maxing it out."

Step 2: If you're planning for a shorter-term goal -- like buying a house -- consider funneling some of your increased earnings into a traditional savings account designated specifically for that financial goal.

If you have a longer time horizon of at least five years, you can also consider investing in a high-quality, higher-yield mutual fund or an exchange-traded fund, or ETF.

But keep in mind that other financial priorities should come first -- such as building up a healthy rainy day fund of ideally six months' worth of your take-home pay.

%VIRTUAL-pullquote-While you—and your kids—can take out loans to finance everything from college to a home, you can't take out a loan to finance your golden years.%Bottom line: Your employment situation could change at any time, says Goldman, so don't get too used to living on that plum raise.

To that point, if you do find yourself suddenly unemployed, experts say that it doesn't necessarily signal a time for drastic action.

"If you've done your job in regard to having a sufficientemergency fund, you may notneed to change your investment strategy -- at least initially," Roberts says.

For example, if you receive a severance package, Roberts suggests keeping that money in liquid form until you find new employment. "Then when things get back to normal, you can focus on investing as you did before the job loss," he adds.

This approach helps buffer you in the event that you burn through your emergency funds because it takes longer than you anticipated to secure a new gig.

Life Changer No. 3: You Become an Empty Nester

Whether you have one child or several, sending your grown kid off into the world can be an emotionally charged time -- so it's not surprising that personal finances can be the last thing on Mom and Dad's mind.

But the minute your kids are on firm financial footing as adults, you should consider taking stock of your own money situation -- particularly what you might need to do to ramp up saving for retirement.

Step 1: "At this point in their lives, people should start catching up on their savings," Goldman says.

So in addition to ramping up your 401(k) contributions, says Goldman, you should consider putting money into a Roth IRA, if you're eligible.

A Roth differs from a traditional IRA in that you pay taxes upfront at today's tax rates. In return, you don't have to pay taxes on your investment earnings when you withdraw the funds at retirement.

But there are specific rules and income limits for opening a Roth, so be sure to do your research first. If and when you do become eligible, you can also consider doing a Roth conversion from a traditional IRA, if you've held the funds in a non-deductible IRA for a year.

Step 2: While it may be tempting to funnel all of your money into retirement savings the moment junior nabs his first post-college gig, it might not be your best bet just yet.

Translation: You don't want to get overconfident about your child's independence.

"After their college years, your kids may need more help than just a roll of quarters for laundry, so you may want to keep some of your assets available," says Sarah Maskill, a certified financial planner and founder of Financial Answers in Somers, Connecticut.

Just remember this one golden rule of financial planning: While you -- and your kids -- can take out loans to finance everything from college to a new home, you can't take out a loan to finance your golden years.

Life Changer No. 4: You Cycle Into the 'Sandwich Generation'

According to a Pew Research Center study on the sandwich generation, about 15 percent of adults between the ages of 40 and 59 find themselves having to provide support to an aging parent and a minor child -- at the same time.

In other words, they've joined what's often referred to as the sandwich generation -- an unenviable membership that can take a toll on your finances.

Step 1: "If you are indeed supporting both sides, you may need to build up your emergency fund," Roberts says.

So, maybe instead of having three to six months of net take-home pay saved up, you have nine.

And as tempting as it may be to dip into your retirement nest egg to help pay for eldercare expenses as they crop up, resist the urge and find time to talk to a financial pro before you make any such moves.

Step 2: It's also important to think about what may need to be done to safeguard your parents' finances -- to help keep them from putting undue strain on yours.

"It's best to have conversations with your parents early, when everyone is still healthy," Goldman says.

So do a deep dive into their finances as a team, making sure to compile an inventory of all your parents' bank, retirement and investment accounts -- along with the necessary passwords.

It's also helpful to broach executorship decisions, end-of-life wishes and, perhaps most important, long-term care plans.

Long-term care insurance, says Goldman, can help pay for such costly eldercare expenses as regular home visits from a nurse.

Another key to-do? Figure out who has power of attorney, adds Goldman, especially if your parents are contending with Alzheimer's or dementia.

Life Changer No. 5: You're Getting Close to Retirement

Congratulations! According to the calendar, you are just a few years out from calling it quits -- and doing that daily commute for the last time.

%VIRTUAL-pullquote-To help protect yourself from market volatility, dial down the aggression in your portfolio by rebalancing your asset mix to focus on less volatile investments.%But in order to help set yourself up for a successful new chapter of life in your golden years, you may want to consider making some fine-tune adjustments to your investment strategy.

Step 1: You're now at a stage when you may not have time to wait for the market to recover from downward swings.

So to help protect yourself from market volatility, dial down the aggression in your portfolio by rebalancing your asset mix to focus on less volatile investments.

Step 2: It's also time to start thinking about when you or you and your spouse will start taking advantage of your Social Security benefits -- ideally in conjunction with a financial professional.

It all depends on your individual financial situation as you near retirement, but you may opt for anywhere between the ages of 62 and 70.

"There is strategy as far as coordinating with the benefits of a spouse, and there are thousands of permutations on what is the best thing for you to do," Goldman says.

To help keep track of your money, and get an estimate of future benefits payouts, you can sign up for a My Social Security account.

Life can pose all sorts of ups and downs -- some welcome and others less so -- but if you thoughtfully navigate these reboots, you can help keep your finances on track.
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