Instead of hauling out those familiar New Year's resolutions about eating less and exercising more, how about focusing on something that's also very good for you in the long run. We're talking about your financial plan! Here are 12 resolutions that can help ensure your financial confidence.
You can't expect to reach a goal without knowing where you're starting from. Using December 31, as the effective date, update your personal balance sheet (assets versus liabilities, broadly speaking). If you're retired, make note of the income you receive from Social Security, pensions, retirement plan assets or other sources. Everything proceeds from this first step, so take the time to bring these numbers up to date.
How closely did last year's spending match what you'd planned? Were unexpected increases one-time items or ongoing costs? Where can you trim expenses?
Although some budget items are fixed, a sharp pencil can produce significant savings on other costs. Start with what you realistically expect to have as income, then assign those dollars to your various expense categories, while also maintaining flexibility to account for things like healthcare that can't be pinned down precisely.
Account titling often occurs haphazardly, which can create problems down the line. If one partner dies and an account is titled only in their name, those assets can't be readily accessed by the survivor. The solution may be creating joint accounts, but it's not always that simple. Titling has implications across a range of estate planning issues, as well as other situations such as Medicaid eligibility and borrowing power, tooo. Review your account titling and discuss with your team of professionals.
If you don't correctly document and update your beneficiary designations, who gets what may be determined not according to your wishes, but by federal or state law, or by the default plan document used in your retirement accounts. When did you last update your designation? Have life changes occurred since then?
A certain amount of assets should be set aside in cash accounts that can be readily accessed - talk with your advisor about whether your current allocation strikes the right balance. Note that the cash portions of your brokerage and retirement accounts serve a different purpose and shouldn't be counted as emergency reserves.
Appreciation in one asset class or underperformance in another can leave your portfolio with a different allocation than what you originally intended. Revisit your current and ideal asset allocation at least annually and rebalance as needed (consider rebalancing with new contributions to help avoid capital gains taxes). Consider, too, whether you're comfortable with your portfolio's current level of risk. Risk tolerance isn't static - it changes based on your net worth, age, income needs, financial goals, and other considerations.
Most retirees have several sources of income such as Social Security, pension(s), retirement portfolios, rental properties, notes receivable, inheritances, etc. Think about how secure each source is. Can you count on that inheritance? Would rental property vacancies interrupt your cash flow? Are the notes receivable backed by collateral? If too much of your retirement income is from less-than-solid sources, it may be time to reposition your assets.
If you're not yet retired, you need to go online and establish an account with the Social Security Administration - the SSA doesn't mail out individual statements of accrued benefits anymore. Review your statement, and be sure all your earnings over the years have been recorded. Use the SSA's online calculator to compute your benefits at various retirement ages. If appropriate, revisit your spousal plan and revise as needed.
Think strategically about your contributions - for example, consider whether or not it'd make sense to donate low-basis stocks in lieu of cash, or learn about establishing a donor advised fund to take an upfront deduction for contributions made over the next several years. Give, but do so with an eye toward reducing your tax liability.
What changes are needed given your current lifestyle and the market environment? Don't fixate solely on your retirement assets' value - instead, drill down into what types of assets you hold, what your expected cash flow will be, what your contingency plans are, what rate of return you're assuming, what inflation rate you're assuming, and how long you're planning for. Retirement plans have many moving parts that must be monitored on an ongoing basis.
You should now have a good idea of your cash flow situation, what your retirement income picture looks like, and where other challenges lie. Do you need to adjust your IRA contributions, other account contributions, or tax withholding? Are you taking full advantage of your employer's retirement plan options, particularly any contribution match? Go after any problem areas - or opportunities - systematically and promptly.
Your advisor can help you with specialized tools, with impartiality, and with the experience earned by dealing with many market cycles and many different client situations. Communicate openly about what's happening in your life today and what may happen in the future. Advisors can't help you manage what they don't know, so err on the side of over-communicating. Establish a regular meeting schedule to review your portfolio and retirement goals.