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Here’s Your Year-End Financial Checklist

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Steve Pomeranz, year-end financial checklist

A few days back, my primary care doctor’s office sent me a reminder to come in for my annual physical exam.  You know, the one where they check you out just to make sure everything’s humming along as it should and to make sure you’re doing all you can to stay in good health for the next 12 months.

on your annual financial checkup, take stock of your financial health.  Consider how you’ve progressed towards financial goals and how well you’re positioned for future financial success and prepare a budget for spending, savings, and investments in the year ahead.

Along the same lines, as a financial adviser, I urge my clients to take stock of their finances regularly, ideally every month or every quarter, but definitely at least once a year. Think of this as your annual financial checkup where you take stock of your financial health, how you’ve progressed towards your financial goals and how well you’re positioned for future financial success.  And then prepare a budget for spending, savings and investments in the year ahead.

This financial health check will give you peace of mind, keep you on-track to achieving your financial goals and protect you in times of adversity. It will also serve as a gentle motivator that gets you to think twice before spending frivolously and guide you toward staying on top of your savings and retirement goals.

So today I plan to talk about the things I’d like you to think of as part of your annual financial checkup.  Let’s get started. 

Estate Documents:

Some of you may have heard the urban legend about the guy who got divorced and remarried and then accidentally left millions to his ex-wife when he died because he forgot to change his beneficiaries. The problem is, this isn’t a myth. These things can and do happen, more often than you might think, as Jennifer Woods of CNBC points out in a recent article.

A year-end financial checkup also helps you make sure your important documents are in order, reflects your wishes, and you are up-to-date with major life changes such as marriage, birth, or divorce. These are documents such as your last will and testament, health-care proxy, and power of attorney. Your estate planner should make sure these documents are updated to reflect any recent changes to state or federal laws.

Designated Persons:

Another aspect of these documents is making sure that the people you’ve appointed to handle various things like your estate, medical decisions on your behalf or acting as guardians if you have minor children are still alive and capable. Furthermore, situations and relationships often change, so someone who may have once been appropriate may no longer be the right choice. For example, people often list their parents as guardians of their children, but parents age or get sick or disabled and are often not in a position to act as guardians.  Make sure you’re comfortable with your choice for appointees, and talk to them every year about how you’d like them to manage your affairs.  Don’t just rely on documents because written words can be interpreted differently and could lead to actions you may not want.  It’s always a good idea to have that talk and to let your appointees know they’ve been nominated.  Ask them if they’re still willing to play the part and tell them how you’d like your affairs handled. It’s also a good idea to record these conversations so they be referred back to or presented should disputes arise.

Now is also a good time to add or check who you’ve listed as beneficiaries for things such as life insurance policies, retirement accounts, CDs, savings or brokerage accounts. If a beneficiary isn’t named the asset will pass through your estate and be distributed based on the terms of your will.

Here’s another thing.  Our nation is one of immigrants who’ve come from abroad, settled down in this country, and done well for themselves but still have strong emotional ties to their homelands and the people they’ve left behind such as parents or siblings. While it’s tempting to think that a non-U.S. parent or sibling could serve as your estate executor or be the best guardian to your children, I urge you to make sure your estate executor is a U.S. resident and domiciled in the United States.  If this is not done and your nominated executor doesn’t qualify, U.S. courts may appoint a public administrator to represent your estate, adding delays and expenses which can financially and emotionally hurt those you leave behind.

Take it from me, I’ve seen this happen first hand.  In one case, a young immigrant couple died in an accident leaving behind two toddlers, and no one in the U.S. as a designated executor.  Let’s just say what followed was not what the parents would have wished for. As a financial adviser, I get to see a lot of these situations that could have played out a lot smoother if the folks involved had diligently done their annual financial checkups.

Employer Options:

Switching gears, the year-end is also when many employers want you to enroll in insurance plans.  Now is a good time to assess your insurance needs and to make sure you are taking advantage of the other benefits that your company or the government might offer, such as health savings accounts and retirement savings accounts like 401(k)s and 403(b)s. Also, make sure you are taking advantage of retirement-plan contribution matches from your employer.  As I have said many times before, matching contributions cost you nothing and can significantly boost your savings over time through compounded growth.  Don’t leave that free money on the table.

Tax Strategies:

By December 31st of each year, make sure you’ve taken advantage of strategies that could lower your tax burden. Ask yourself: With the recent market volatility, can I realize tax losses to offset realized gains before year-end? Have I funded as much as I can to my employer-sponsored retirement plans and IRAs?  If you plan to give to charity, could you gift appreciated stock as opposed to cash, to maximize the tax benefit?

My point is while most people wait until April before they look at their taxes, December 31st is when the tax year ends for individual payers.  Make this year-end check a priority and talk to your financial and tax adviser before the new year.

Emergency Fund:

Check the status of your emergency fund. While the U.S. economy is getting stronger with fewer layoffs, you never know what might happen or when.  It’s always good to be prepared for the worst at all times and have an emergency fund with money on-hand to tide you over.  I like to err on the side of caution and recommend an emergency fund that covers at least 9 to 12 months of expenses, to be safe. In addition, assess your situation and have a larger emergency fund if, for example, you have a family with a few kids and one spouse doesn’t work, or if you’re over 50 because it may take you longer to find a new job than someone in their 30’s or 40’s.  Be smart about these things, and confront yourself with the reality of your circumstances.

Required Minimum Distributions (RMDs):

For folks who are retired, some retirement accounts (including traditional IRAs and 401(k) plans) require you to withdraw a certain amount of money each year beginning at age 70½, unless you’re still working, in which case you may be able to defer your 401(k) required minimum withdrawals. Before year-end make sure you’ve taken out your required minimum withdrawals because not doing so can result in stiff penalties from the IRS.

Credit Report:

Finally, with rampant identity theft and cyber crime, this is also a good time to get a copy of your credit report, which you can access for free once a year from each of the three major credit bureaus: Equifax, Experian, and TransUnion. Your credit report affects everything from borrowings to insurance premiums and sometimes even getting a new job. Check your credit report, and if you find anything suspicious or erroneous, make every effort to correct it.  Better now than when you need a loan and finding out too late that you’re credit’s really not up to snuff.

Take your year-end financial checkup seriously and sail into 2016 with greater peace of mind knowing that you’re well prepared for pretty much everything that may come your way.  I guarantee, if you do this year after year, you will be in much better financial shape down the road than if you choose to ignore this simple year-end exercise!

I've been an investment strategist and adviser for over 35 years, leading with a mission of unbiased advice to educate and protect listeners on my weekly radio show on NPR affiliates nationwide. I have been named a “Top 100 Wealth Advisor” by Worth Magazine and “Top Advisor” by Reuters.