Dad and young daughter

7 steps to help you get ready for your annual financial review

Conducting an annual review of your retirement goals and strategy may help ensure that your plans for your financial future remain realistic and on track. Taking these easy steps will help simplify your annual review.

Step 1: Schedule a meeting with your financial professional

Once you’ve scheduled a meeting for your annual financial review, spend a little time gathering your thoughts — and paperwork — to help make the process as meaningful and beneficial as possible. Here’s how to prepare:

  • Bring the right documents. The more information about your present financial situation you can bring to the meeting, the better your financial professional will be able to assess your current outlook and future needs. Bring along the most recent copies of your retirement account statements, other savings and investment account statements, life insurance policies, annuity contracts, and estate planning paperwork. If you can’t realistically gather it all together in time, at least jot down the basic information to share with your investment professional.
  • Identify and rank your overall financial priorities. Does your financial plan include making your money last during retirement, funding education costs, creating an adequate nest egg, supporting an older loved one, leaving behind sufficient assets for heirs, and/or minimizing estate and gift taxes? Create a list, starting with your most important priorities and working your way down.
  • Write down specific questions and concerns ahead of time. For example, if you’re not sure how a particular investment product or strategy is supposed to work, make a note of it so your financial professional can zero in on the issues that matter most to you.

Step 2: The year’s not over yet—progress check

The main reason for creating an annual financial plan is to create the most efficient plan to follow as you pursue essential short- and long-term goals for the upcoming year. To get a clear vision of the future, first review existing plans to measure whether you’ve managed to stay on the right track this year. Ask yourself the following questions:

  • Have you taken full advantage of gifting strategies as part of your overall estate plan this year? This can be an effective way of supporting loved ones (or a charity) while simultaneously reducing your future estate tax burden.
  • Have you considered selling “losing” investments to offset taxes on gains elsewhere in your portfolio?
  • Are you certain that all your beneficiary designations and other information on important legal documents remain up to date?
  • Have you maximized IRA contributions yet? Technically speaking, the contribution deadline isn’t until the April tax-filing deadline, but you probably shouldn’t wait until the last minute to fund your IRA.
  • Have your total assets minus total liabilities (such as loans and credit card debt) gone up or down during the past year? Many investors may be facing a smaller net worth because of declines in the value of stock and real estate holdings. If this describes you, don’t despair. Consider whether you can start saving more to rebuild your assets. Or you may want to review your asset allocation to determine whether an adjustment could help you build wealth over the long term.

Step 3: Review your retirement goals

One of your first steps should be reviewing your retirement savings goals. Assess whether anything significant has occurred during the past year that might affect either your outlook for retirement or your current strategies to prepare for it.

For example, have you decided to change the date when you’ll retire? Or have you experienced any new milestones such as getting married, getting divorced or having a child? Any of these events may affect how much you will want to save to fund the retirement you envision.

Step 4: Take a fresh look at your retirement strategy

Your portfolio’s specific mix of stocks, bonds and cash, known as your asset allocation, should complement your financial goals, risk tolerance and time horizon. If you haven’t taken a fresh look at your investments in a while, don’t assume that your old asset allocation is still appropriate for your current needs.

Even if your personal outlook hasn’t changed, keep in mind that uneven returns provided by different investments may have caused your portfolio to shift from your intended asset allocation. Given the market volatility that has occurred since 2007, if you have not reviewed your asset allocation since that time, there may be a good chance that uneven returns have caused it to change. If your asset allocation needs to be rebalanced, now may be the time for action.

Step 5: Defeat debt

The U.S. savings rate remains low, due in part to higher rates of borrowing and credit card debt. If debt is getting in the way of your long-term goals, consider strategies for chipping away at it:

  • Transfer high-interest debt to a credit card with a lower rate.
  • Try to pay at least twice the minimum required payment.
  • Use a tax refund to pay off outstanding loans.

Step 6: Consider saving more

No one knows what the future may hold. A good way to improve the odds that you saved enough for retirement is to save more, no matter how prepared you may already be.

Consider creating a comprehensive household budget that allows you to plan and track spending on an ongoing basis. Your expenses should include a commitment to “pay yourself” in the form of retirement savings. More than likely you’ll find some “fat” in your budget, even just a little, that can be trimmed to free up savings dollars.

Step 7: Give your plan a long-term vision

You probably already know about some of the financial goals you’d like to chip away at in the coming year. The key to success is to maintain a flexible outlook regarding your strategies for the future, and make a point of considering priorities that need to be addressed well beyond next year, including:

  • Estate planning. Many people have done nothing to prepare financially for the post-death management of their assets. Have you? Failure to do so could leave your heirs short-changed. Do you have a will? Have you reviewed your beneficiary designations? Have you considered the tax implications of transferring your estate to your heirs? If your estate plan was prepared some years ago, it may be time for a review to make sure it is appropriate for your current circumstances.
  • Insurance coverage. It’s better to have insurance and not need it than to need it and not have it. Conducting an insurance needs analysis and reviewing your existing coverage should be on your financial “to do” list regardless of what year it is.
  • Investment reviews. A lot can change in 12 months. Be sure to touch base at least once a year with your financial professional, if not more often, to make sure all your bases are covered.

By taking time to review your finances at least annually, you may find yourself further along in pursuing your long-term goals.