What if you oriented your New Year’s goals along the lines of a nervous Nellie money manager?

Instead of focussing exclusively on return, you would be hedging various risks in your life, many of which you may not have considered.

When Tom Nowak, a fee-only financial planner at Quantum Financial Planning LLC in Grayslake, Illinois, considered his life risks, he was at a crossroads.

Originally trained as a chemist who specialised in quality control, Nowak took an early retirement opportunity package from Hospira Inc., two years ago, when he turned 52. Too young to stop working and not interested in a golf-centric lifestyle, he embarked upon a mid-life risk analysis as he trained to become a financial planner and start his own practice. Then he began to examine the different challenges he faced.

“My underlying thesis is that ‘hedging’ equals ‘risk management’ and that financial planning includes decisions regarding career choice, amount of working-year decisions and consequences of career flexibility,” Nowak says.

Nowak categorised the risks he faced as he entered a new phase of life, posing a series of questions that most working adults should ask themselves.

[bul] Career diversification risk: Nowak and his wife both had the same employer during most of their careers. If you and your spouse share employers, do you face the threat of both being laid off in hard times? Nowak says that starting his own business gave his family “employer diversification”.

[bul] “Enron” or company risk: Is your 401(k) dominated by company stock? No matter how well you think you know your employer, you don’t know exactly what’s going on in the executive suite. Reduce your company-stock holdings to avoid possible pitfalls.

[bul] Social Security/US government deficit risk: Will Congress rescue Social Security and provide the same inflation- adjusted benefits that it offers today? Don’t bank on any one scenario. You should be saving so that the Social Security question is irrelevant.

[bul] Retirement risk: For millions of Americans, outright retirement will not be the answer. They may want to continue working, change careers or start a business. Or they may not have a choice, due to inadequate savings.

[bul] Who would ever have thought that living longer would so complicate our lives? While it creates a rich stew of possibilities for enhanced growth and learning, it means we will need more money to sustain our lifestyles.

Better health care, nutrition, drugs and education have translated into almost 20 more years of life for the average 65- year-old American woman, compared with 16 years in 1960. Men of that age today can expect to live 16 more years, versus 13 four decades ago. It won’t be unusual to see active octogenarians and nonagenarians working in their third or fourth careers.

The key theme here, Nowak notes, is flexibility. Shifting careers may even have the effect of prolonging your life, particularly if “there is more time for exercise and fewer meals on the run”.

On the financial side, you will need to manage your longevity risk by annuitising, that is, buying an insured vehicle that will guarantee inflation-adjusted monthly payments for the rest of your life. Such products, while almost non-existent today, will be essential for wealth preservation. Keep an eye out for them as you plan for the future.

The bottom line for most of us, though, is that we aren’t saving enough. An additional 21 percent of our pay needs to be set aside, on average, to cover 75 percent of pre-retirement income, according to the Aon Consulting/Georgia State University Retirement Income Replacement Study.

Ah, but wouldn’t life be simple if all we had to worry about was funding a single retirement kitty? Like many of us baby boomers, Nowak is constantly confronted by concerns such as changes in the tax laws and college-savings needs.

With one daughter in college and another in sixth grade, Nowak is still paying <\m> and saving for <\m> higher education.

Due to tax-law changes, he stopped funding a trust for his youngest daughter and pumped money into Illinois state’s Bright Directions 529 college savings plan along with a $2,000 contribution to a Coverdell account.

Having a college-funding strategy in place, Nowak hasn’t neglected his retirement, though. He took the opportunity to further diversify his and his wife’s portfolio.

No Simple Formula

“Once I retired from my first career,” Nowak says, “I converted my 401(k) to a self-directed individual retirement account. This move allowed me to get exposure to some asset classes not previously available, such as real-estate investment trusts, emerging markets and small-company stock mutual funds.”

To make it all fit together, one last piece of Nowak’s plan was to balance his wife’s 401(k) to complement the changes he made in his holdings.

There is no simple hedging formula for all of your life risks. If you get divorced, become disabled or pay for parental care, those can be real show-stoppers in your financial planning.

You can, however, fund and monitor big-ticket items such as emergency, college and retirement savings; total debt; and household spending. You can either buy an off-the-shelf software programme like Quicken or Microsoft Money, or hire a certified financial planner who works on a fee-only basis.

If you eschew the do-it-yourself route, make sure that your adviser makes no commissions on products and is a fiduciary. That means he takes legal responsibility for his advice, discloses all potential conflicts and can be sued if he leads you astray.

Sometimes the best way of reducing your financial risk is to avoid those giving you tainted, expensive advice. Common sense is often the best hedge against bad investment decisions.

John F. Wasik, author of “The Merchant of Power,” is a Bloomberg News columnist. The opinions expressed are his own.