If it’s been a while since you’ve revisited your retirement plan, now is the perfect time to prioritize an annual financial review. An annual review allows you to assess your current financial situation, adjust strategies, and make informed decisions to stay aligned with your retirement goals. This regular check-in can play a significant role in keeping your retirement planning on track and ensuring you’re prepared for the future you’ve envisioned. Keep reading to discover how to make the most of this important process.
Why is an Annual Financial Review Important?
Retirement planning is intricate, and while it is easy to create a plan and then shelve it, feeling as though it’s “done”, there are compelling reasons to review your strategy annually. An annual financial review helps you keep your retirement plans up-to-date and responsive to any changes in your life or financial circumstances.
- Adjusting for Life Transitions
Life is dynamic, with changes in employment, health, and family status impacting your financial landscape. An annual review allows you to adjust your retirement strategy to reflect these changes and life transitions, helping to keep your plan relevant and effective.
- Watching Market Fluctuations and Assessing Investment Performance
The financial markets are constantly changing, and the performance of your investments can vary significantly over time. By reviewing your portfolio annually, you can make necessary adjustments to align with your risk tolerance and investment goals.
- Keeping Up with Regulatory and Tax Law Updates
Changes in tax laws and retirement regulations can affect your savings strategy and the efficiency of your investments. An annual financial review helps you stay informed about these changes and adapt your plan accordingly.
Annual Financial Review Components
If this is your first time undertaking an annual review of your financial plans, here are a few steps to help you get started:
Step 1: Retirement Savings Assessment
- Current Savings: Evaluate your current retirement savings across all accounts, including employer-sponsored plans and IRAs. Determine if you are saving enough to meet your retirement goals.
- Contribution Levels: Assess whether you are maximizing available contribution limits and consider increasing contributions if possible.
Step 2: Investment Portfolio Analysis
- Asset Allocation: Review your investment portfolio’s asset allocation to ensure it matches your risk tolerance and timeline to retirement.
- Performance Review: Compare your portfolio’s performance against relevant benchmarks to determine if adjustments are needed.
Step 3: Expenses and Fees Evaluation
- Cost Analysis: Analyze the fees and expenses associated with your investments and retirement accounts. High costs can erode returns over time, so consider lower-cost alternatives if necessary.
Step 4: Tax Efficiency Review
- Tax-Advantaged Accounts: Ensure you are utilizing tax-advantaged accounts effectively to reduce your current and future tax liability.
- Withdrawal Strategies: Plan for tax-efficient withdrawal strategies in retirement to maximize the longevity of your savings.
Annual Financial Review: Adjusting Your Retirement Strategy
Many people who undertake an annual review find it’s time to make some changes. If this applies to you, here are a few considerations:
- Catch-up Contributions: If you are behind on your retirement savings goals, explore catch-up contribution options available for individuals over 50. These can significantly boost your retirement savings.
- Debt Reduction: Reducing debt, especially high-interest debt, can free up more funds for retirement savings. Assess your debt levels and prioritize repayment as part of your retirement strategy.
- Retirement Income Planning: Consider various sources of retirement income, including Social Security benefits, pensions, and annuities. Estimate your future income and expenses to ensure your retirement plan is viable.
Utilizing Professional Guidance for Your Annual Financial Review
Some individuals may feel confident about their financial know-how and undertake an annual review on their own. However, if it feels overwhelming to navigate an annual financial review on your own, a professional can help.
- Financial Planner Consultation: A financial planner can provide valuable insights and advice tailored to your specific situation. They can help you navigate complex retirement planning challenges and identify opportunities to optimize your strategy.
- Estate Planning Considerations: Incorporate estate planning into your annual financial review. Ensuring that your estate plans are up to date can protect your assets and provide for your heirs according to your wishes.
Final Thoughts
An annual financial review transcends being a mere routine examination; it serves as a strategic process for enhancing your preparedness for retirement. Engaging in this detailed evaluation of your finances, refining your retirement approaches, and forward-planning not only helps to keep you on track but also boosts your prospects for a stable retirement.
If you’re ready to speak with a financial professional you can trust about building a plan for your financial future, we can help. At Principal Preservation Services, we assist our clients with all aspects of retirement planning. We can help you personalize a comprehensive retirement plan suited to your needs and financial circumstances. Contact us today to learn more!
