BOSTON (TheStreet) -- Hindsight is 20/20, and sometimes a single decision you make now can have huge unforeseen consequences. And while it may be too late for Arnold, Charlie or Lindsey to turn back the clock, there's still time for you to make sure the choices you're making help create the future you want.
Your 40s offer an ideal time to start making some smart financial planning decisions. Some decisions are easy: Invest in a diversified portfolio, put away the maximum possible to your 401(k) or other retirement plan, buy some kind of life insurance if you have dependents. Others are not so much difficult as they are overlooked, perhaps because there's less incentive from their respective industries to sell them to you. Nonetheless, here are some critical areas to review while there's still time:
Hindsight is 20/20, but it's much better to look at the financial road ahead and be sure of the best way to navigate it.
Ask any good adviser and they will tell you risk management is an essential part of a financial plan. While many people review their home and auto insurance carefully, they often overlook umbrella insurance. Umbrella insurance provides a second layer of liability coverage that kicks in after your home and auto insurance in the event you are sued. For example, if there's a judgment against you for $2 million and you have $500,000 in personal liability from your home insurance and $300,000 from your auto insurance, the umbrella insurance would potentially cover you for the remaining $1.2 million.
It's important to remember that umbrella insurance usually requires that you maintain a minimum amount of personal liability coverage in your primary insurance (for instance, home and auto), so you want to make sure you coordinate your policies to avoid a gap in coverage.
Umbrella insurance is relatively inexpensive; you can typically buy $1 million coverage for an annual premium of only a couple hundred dollars. For the additional protection and peace of mind, it's often well worth it.
Having all your ducks in order in your 40s also means taking time to review whether you need disability insurance. One of your most valuable assets while you're young is your "human capital" -- that is, the present value of all your potential future wages. When you're 40, that translates to all the potential earnings from now until you retire, typically around age 65. Anything you can do to increase and protect your ability to earn future wages is a critical aspect of planning, so disability insurance should be high on your list.
Although some employers provide disability insurance as an employee benefit, often the coverage is not enough to cover one's essential expenses, and you may need to buy a supplemental policy. For those who do not have disability insurance through their employer, consider contacting an adviser to help determine how much you may need and whether you qualify.
You actually may have some disability insurance without realizing it -- through your Social Security benefits. If you qualify for Social Security, you have some disability coverage should you incur a medical condition that falls within agency criteria.
But to get such benefits, you must qualify for Social Security
based on your own work record
. Unlike retirement benefits, which someone can get based on the earnings of a spouse, you are eligible for the disability benefits only if you have worked in a Social Security-covered job and earned enough credits.
During your working years, therefore, it's important to make sure that whatever job you are in, you are earning the necessary credits to qualify you later.
Wills and powers of attorney
Estate planning has been discussed time and time again, particularly with recent debate over the Tax Relief Act and Unemployment Insurance Reauthorization and Job Creation Act of 2010. But the spotlight has been mainly on trusts and other complex estate planning strategies that are often very costly; in the meantime, many people forget to address some of the basic aspects of their estate plan, namely wills and powers of attorney.
For example, you could forget to update your will due to changes in federal or state legislation, beneficiaries or the titling of assets. You could also fail to prepare the necessary general powers of attorney so that, in the event you become incapable of making financial decisions, a family member or trusted associate has the authority to do so on your behalf. Many banks and custodians require that you sign their own power of attorney forms and may not accept a general one drafted by your attorney, so be sure to check with the different institutions where your accounts are held.
Making the right financial decisions early on, including in areas that are sometimes overlooked, can make a significant difference in how one's financial picture ends up. By taking time to make good choices now, you may save yourself a lifetime of regrets later.
Greg Plechner is a CFP and a principal at
, based in Westwood, N.J., and Boston and a member of NAPFA, the National Association of Personal Financial Advisors.
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