As the year begins to wind down, your financial plan deserves a year-end review too.
The final few months of the year can be an important time to evaluate retirement accounts, taxes, insurance coverage, income needs, and other financial decisions that may affect both your current situation and your long-term goals.
While every financial situation is different, here are seven areas worth reviewing before December 31.
1. Review Your Retirement Contributions
Take a look at how much you have contributed to your retirement accounts so far this year.
Depending on your situation, you may want to consider increasing contributions to an employer-sponsored retirement plan such as a 401(k), 403(b), or similar account.
If you are eligible to make additional catch-up contributions based on your age, year-end may also be a good time to determine whether those opportunities fit into your overall retirement strategy.
Retirement contribution limits and eligibility rules can change from year to year, so discussing your options with a financial and tax professional can help you understand what applies to you.
2. Evaluate Required Minimum Distributions
For retirees who are subject to Required Minimum Distributions, commonly called RMDs, it is important to make sure the appropriate distributions are completed by the applicable deadline.
Missing an RMD can potentially result in tax consequences.
Your required distribution amount generally depends on factors such as your age, retirement account balance, and the type of account you own.
If you have multiple retirement accounts, reviewing your distribution strategy before year-end can help prevent last-minute decisions.
3. Look for Tax-Loss Harvesting Opportunities
Investment markets do not move in a straight line.
If certain investments in a taxable portfolio have declined in value, selling some of those positions may potentially allow realized losses to offset realized capital gains, subject to IRS rules and limitations.
This strategy is commonly referred to as tax-loss harvesting.
However, tax considerations should not be the only reason to buy or sell an investment. Any investment decision should still fit your overall financial objectives, risk tolerance, and long-term strategy.
4. Review Your Charitable Giving Strategy
If charitable giving is important to you, year-end can be an excellent time to review how you are making those gifts.
Depending on your circumstances, charitable strategies may include:
- Direct cash contributions
- Donating appreciated securities
- Donor-advised funds
- Qualified charitable distributions from eligible retirement accounts
Different strategies can have different tax consequences and eligibility requirements.
Coordinating charitable giving with your broader financial and tax plan may allow you to support organizations you care about while making your giving strategy more efficient.
5. Revisit Your Insurance Coverage
Financial planning involves more than investments.
Insurance is often an important part of protecting the financial plan you have worked hard to build.
Consider reviewing your:
- Life insurance
- Long-term care strategy
- Health insurance
- Medicare coverage
- Disability insurance
- Property and casualty coverage
Major life changes such as retirement, marriage, divorce, the birth of a grandchild, the death of a spouse, a new home, or changes in income can all affect the amount and type of coverage you may need.
Your insurance strategy should evolve as your life changes.
6. Check Your Beneficiary Designations
Beneficiary designations can be easy to overlook, but they may have significant estate-planning consequences.
Retirement accounts, annuities, life insurance policies, and certain other financial accounts generally allow you to name beneficiaries directly.
Take time to verify that your beneficiary information still reflects your wishes.
This can be especially important after major life events such as marriage, divorce, the birth of children or grandchildren, or the death of a previously named beneficiary.
Beneficiary designations should also be coordinated with your overall estate plan.
7. Review Your Retirement Income Plan
If you are approaching retirement or already retired, one of the most important questions is:
Where will your income come from next year?
Retirement income may come from several sources, including Social Security, pensions, investment accounts, retirement accounts, annuities, savings, rental income, or other assets.
A year-end review can help you evaluate:
- Expected monthly income
- Upcoming expenses
- Withdrawal amounts
- Tax implications
- Investment risk
- Emergency reserves
- Future healthcare expenses
The goal is not simply to accumulate assets. It is to create a strategy designed to help those assets support the lifestyle you want throughout retirement.
Start the New Year With a Clearer Financial Picture
Financial planning is an ongoing process.
Tax laws change. Markets change. Your income changes. Your family changes. And your priorities may change as well.
Taking time before year-end to review your financial strategy can help identify opportunities, address potential concerns, and make sure your plan continues to reflect where you are today and where you want to go.
If you have questions about your retirement income, investments, insurance strategy, or overall financial plan, consider scheduling a year-end financial review.
A conversation today may help you enter the new year with greater clarity and a more coordinated strategy.
Important Disclosure: This material is provided for general informational and educational purposes only and is not intended to provide individualized investment, tax, legal, or accounting advice. Financial and tax laws and regulations are subject to change. Consult your financial professional, tax professional, and/or legal professional regarding your individual circumstances. Investing involves risk, including the potential loss of principal. Insurance and annuity guarantees are subject to the claims-paying ability of the issuing insurance company.