A lot can change in a year. Your financial goals may change. Your investment mix may shift. Your insurance needs may be different. Because things change, it’s important to look over your finances every year or so to determine whether there are any adjustments you may want to make to help keep your finances on track and you and your loved ones protected. Here are ten things to review annually. For specific advice, please consult your TBC Advisor.
- Any new or revised goals?
The start of a new year is a natural time to set new financial goals and to tweak existing goals.
Begin by reviewing your existing goals: Have they changed in the past year? For example, has your target retirement date changed? Whenever a goal changes or you add a new one, it’s a good idea to review your financial plan with your financial professional to determine whether your savings and investment strategies need to be adjusted.
Are there any new financial goals that you want to set? If there are, you may find it helpful to clearly define each goal and then create a plan for pursuing it. The first step is generally to figure out how much money you may need and when you will need it. After you determine a dollar amount and a time frame, the next step is to estimate how much money you may need to save each month to have a good chance of reaching your goal in the time you’ve allotted. (A savings goal calculator or your financial professional can help with this.) Then it’s time to create and implement a plan for how you will move toward your goal. With a plan in place, time on your side, and dedication on your part, you are all set to tackle your goals!
- Are you making the most of your retirement accounts?
Contributing to an IRA and workplace retirement plan are two of the best ways to help build wealth for retirement. Are you making the most of these accounts?
If you are not contributing the maximum amount, consider whether you want to increase the amount you contribute.
Perhaps you recently received a pay raise or bonus, making it possible for you to increase the amount you save each year while still covering your everyday living expenses. Or perhaps you paid off your mortgage or made your last tuition payment and can afford to contribute more this year. Whatever the reason, increasing the amount you save now has the potential to improve your financial security in retirement.
If you are already contributing the maximum annual amount, keep in mind that contribution limits generally increase every few years, providing you with an opportunity to boost the amount you save for retirement.
Reaching age 50 also provides an opportunity to save more. Retirement plans and IRAs generally allow you to begin contributing an extra amount—known as a catch-up-contribution—beginning the year you reach age 50.
You can contribute to a traditional or Roth IRA right up to the due date for your federal tax return for the year. This means that you have until April 18, 2023 to contribute to an IRA for 2022, assuming you are eligible to contribute. With a workplace retirement plan, you may be able to change your contributions at any time during the year or you may be limited to a certain time. You can check the plan rules or contact your plan administrator to find out.
- Are you making the most of your savings account?
As the Federal Reserve increased interest rates in 2022, some banks followed suit and increased the interest rates they pay on savings accounts, money market accounts, and certificates of deposit. If you haven’t compared rates recently, now is a good time to do so. Interest rates can vary dramatically among banks, and you may earn considerably more interest at a bank that offers high-yield accounts.
Also, keep an eye on the amount you hold at any one bank. Remember, deposits are generally insured by the Federal Deposit Insurance Corp (FDIC), but only up to $250,000 per depositor, per insured bank, for each account ownership category. Exceed the limit, and you risk losing money if the bank ever fails.
- Is it time to adjust your asset mix?
How you divide your portfolio among asset classes—stocks, bonds, and cash—can have a big impact on your portfolio’s overall risk and growth potential. Reviewing your asset mix from time to time can help ensure that your portfolio is allocated appropriately for your goals, time frame, and risk tolerance.
Take a look at your asset mix: Has it changed? Differences in performance among stocks, bonds, and cash investments can cause your portfolio to stray from the target asset mix you chose. For example, if the stock market has declined recently, a portfolio that started out as 60% stocks and 40% bonds may now be 50% stocks and 50% bonds. When your portfolio’s allocation strays from your target asset mix, your portfolio either has more risk or less potential for growth than you planned. In this example, it has less potential for growth because stocks now make up less of the portfolio.
If your portfolio has strayed from your target asset mix, rebalancing your portfolio—that is returning it to your target mix—can help keep your investment plan on track.
But before you rebalance, consider whether your target mix is still appropriate for you. If you’ve become more risk averse or if you are significantly closer to the time when you’ll need your money, you may want to reduce risk in your portfolio by shifting to a more conservative asset mix. This typically means reducing the proportion of stocks in your portfolio.
- Is your insurance coverage keeping pace with the changes in your life?
To make certain that your life insurance coverage and disability insurance coverage are still appropriate for your needs, it’s a good idea to review them periodically and when major changes occur in your life.
For example, getting married or the arrival of a child may mean that more people are counting on your paycheck than before. It may be time to increase your life insurance coverage to better protect their financial security in the event of your death.
If you’ve recently taken out a mortgage on a new home for your family, you may also want to increase your life insurance coverage so that the policy’s proceeds are sufficient to cover the mortgage payments.
If your salary increases, it’s a good idea to review your life insurance coverage. A bump up in pay often results in a bump up in lifestyle, so unless you adjust your life insurance coverage, your family may one day find themselves struggling to cover their living expenses with the proceeds from a policy designed for leaner times.
It’s also a good idea to review your long-term disability insurance coverage when your salary increases. This type of insurance is designed to replace part of your salary for a period of time when you are too sick or injured to work. The benefit payments you receive can help you cover your living expenses while you are unable to work. But as your salary increases, you may find that the benefit payments are not large enough for your needs. Supplementing your existing policy so that more of your income is replaced may be an option.
- Have you reviewed your credit reports recently?
It’s important to review them for accuracy at least once a year. Lenders and creditors use the information in these reports to decide whether to extend you credit and the interest rate you’ll pay on that credit. Other companies, such as insurers, utilities, and landlords, may also use them when making decisions.
There are three major credit bureaus—Equifax, Experian, and TransUnion—that produce credit reports. Their reports can differ so it’s a good idea to review all three reports. Under federal law, you are entitled to a free credit report annually from each of the credit bureaus. You can download them at www.AnnualCreditReport.com.
During your review, look for errors in your accounts and payment histories. Also keep an eye out for signs of fraud, such as accounts that you didn’t open.
- Are your estate planning documents up to date?
It’s a good idea to review your estate planning documents with your estate planning professional every few years and when major changes occur in your life. In the intervening years, consider reading over the documents yourself to determine whether changes are needed.
Your estate planning documents may include a will, trusts, powers of attorney for finances and health care, and a living will. As you read, ask yourself if the people you chose to act as an executor, trustee, guardian, attorney-in-fact, and health care proxy are still willing and able to serve. If they are not, your documents will need to be updated.
Next, ask yourself whether there have been any changes in your family, such as a marriage, birth, or death, or a major change in your assets. Or perhaps one of your heirs has become disabled. Each of these changes may signal the need for a formal review of your estate plan.
Even if there hasn’t been a change in your family or assets, reading over your estate planning documents gives you an opportunity to determine whether you’ve simply changed your mind about any of the provisions in them.
If you spot anything that you’d like changed or that you have questions about, please contact your estate planning professional.
- Are your beneficiary designations up to date?
It’s important to review the beneficiary designations on your financial accounts at least once a year. The person, trust, or charity that you name as a beneficiary on an account will generally inherit the assets in that account regardless of any instructions to the contrary in your will. An annual review helps ensure that your beneficiary designations still reflect your thoughts on who should inherit the accounts.
Be sure to check the beneficiary designations on your retirement accounts, investment accounts, bank accounts, and health savings accounts. In some cases, a beneficiary designation may be referred to as a transfer-on-death, payable-on-death, or in-trust-for designation.
In addition to your financial accounts, you may have named beneficiaries on your life insurance policies and annuities so you’ll want to check those also. And if you live in a state that allows you to name a beneficiary on your vehicle registration or real estate deed, review them too.
Please consult your estate planning professional for advice about naming beneficiaries.
- Does your emergency fund need topping up?
It may if you dipped into it last year or if your living expenses have increased significantly.
An emergency fund is money that you set aside specifically to help cover expenses if you lose a job or face large, unexpected expenses, such as medical bills. One rule of thumb is to have enough cash to cover three to six months of living expenses. However, you may want to set aside more cash in some circumstances, such as if you work in a field where it may take longer than six months to find a new job.
- Do you know where your money is going?
Knowing how much you spend each year and what you spend it on can help you develop a realistic budget for the year ahead. It may also help you identify areas where you can trim your spending in order to direct more money to pursuing the goals that are important to you.
It may be easier than you expect to track your spending. Several banks and credit card issuers offer spending reports that break a customer’s spending over the past year into categories, such as groceries, restaurants, clothing, and automotive. And there are expense tracker apps available that can collect information from your various accounts and provide you with a big-picture view of your spending and finances.
Please consult your financial professional for advice.
Reviewing your finances every year or so is a great way to help keep them on track. For specific advice regarding your finances and pursuing your financial goals, please consult your TBC Advisor.
Asset allocation does not ensure a profit or protect against loss in declining markets.
Copyright 2023 Quinn Communications Inc.