By Jason B. Miyashita
A year-end financial review can be instrumental to your future financial success. However, you may not want to wait until the end of the year to review your financial affairs. Consider doing it during the fall so you’ll have ample time to take any corrective action before year’s end. Here’s a quick look at some of the key issues you should consider when conducting your review.
Review your retirement assets. Whether your retirement is a long way off or right around the corner, it is likely that you’ll have to make periodic adjustments to your retirement portfolio. Make sure the investments you’ve chosen are still an accurate reflection of your risk tolerance and time horizon.
Keep tabs on college funding plans. With college costs reaching astronomical heights, you need to utilize every available college funding resource. Financial aid and scholarships, as well as the Lifetime Learning Credit and Hope Scholarship Credit may help alleviate the college cost crunch. However, aid and tax credits alone generally will not fund your child’s college education. Make sure you’re saving and investing enough to help meet your goals. At a minimum, take advantage of the tax savings offered through an Education IRA or a 529 College Savings Plan.
Assess your income tax picture. You may be able to reduce your tax burden — sometimes significantly — by making strategic tax decisions before the end of the year. Your tax professional can alert you to any tax planning strategies that might make sense for your situation.
Review critical documents. Because life’s circumstances continually change, you should review your legal documents and beneficiary designations every year. This will entail carefully combing through any wills, trusts, retirement plan documents and life insurance policies to make sure they are up-to-date. Seek the assistance of a qualified adviser if any modifications are necessary.
Set goals for next year and beyond. A year-end review is an excellent time to start thinking about next year and setting some long-term goals. Take a close look at your day-to-day finances to see if you can reduce expenses and save more. Then make an honest assessment of which goals are most important to you, and then commit to meeting them.
Any time you sit down to address your year-end planning needs, it makes sense to review your investments to determine whether you need to rebalance in order to stay on the right financial track. If you have not reviewed your portfolio lately, you may be surprised at what you find. It is possible that your asset allocation has changed quite a bit since the last time you checked, due to the different performance of the various investments in your portfolio. If that is the case, or if your outlook has changed, it may be time to readjust.
It may help to meet with your financial advisor to discuss your year-end planning needs. Make sure to bring the following documents: insurance policies and annuity contracts, as well as pension, investment and savings account statements. You should also be prepared to provide an overview of your most important short- and long-term financial goals. That way, you’ll be able to see “the big picture” and then focus in on laying the groundwork for a lifetime of financial security. n
— Jason B. Miyashita is the senior investment management consultant and vice president – wealth management at the Asia Pacific Group at Morgan Stanley. He may be contacted at [email protected].