Five Reasons to Review Your Finances Annually

Life is uncertain. Make sure you’re prepared for the unexpected with a focused and up-to-date financial plan.

One place to start: an annual financial wellness review. 

Reviewing your financial plan once a year is just as important as the annual preventive care exam you get from your doctor. It allows you to evaluate and adjust your goals, and to ensure that your strategies align with those goals. It also prompts you to take care of financial “housekeeping” items that aren’t complicated but can have serious consequences if they’re neglected. Here are five reasons to make it a yearly routine.

1. Your Insurance Needs and Beneficiaries Might Need Updating

Insurance can provide great protection against the unexpected, and it’s wise to evaluate your needs annually to make sure you have the right amount and type of insurance to cover unforeseen circumstances that can significantly derail a financial plan. 

  • Consider your life and disability insurance. If you are just starting out and your family is growing, you might want to increase the amount of your life insurance to protect your loved ones from a devastating loss of income on top of the emotional pain of losing a parent or spouse. On the other hand, most people find that as they get older—and their net worth climbs and their children reach adulthood—they need less life insurance. The considerations surrounding disability insurance are similar. And if you have accumulated a lot of sick days, you may want to consider a longer disability waiting period. 
  • Update your beneficiaries. It’s easy to do, and could have a huge negative impact if it’s neglected and not updated to reflect changing circumstances. Note that separate beneficiary designations are required for the UC Retirement Savings Program—your UC 403(b), 457(b), and DC Plans—and your other benefits, including the UC Retirement Plan (UCRP) and UC-sponsored insurance plans. 
  • Check your will. Most people remember to adjust their will in the event of a change in marital status, the birth of a child, or a death in the family, but they sometimes overlook other important contracts and accounts, such as life insurance, prior 401(k) plans, IRAs, and the UC 403(b), 457(b), and DC Plans. Remember that assets in your retirement accounts pass directly to the beneficiaries you designate with your account custodian, trustee, or plan administrator. Plus, your beneficiary designations could supersede any accommodation you have made in your will for your retirement account. Note that if you are enrolled in the ARAG Legal Plan, you have access to will preparation assistance. 

2. Your Investing Goals—and Your Investments—May Have Changed

Because you may have multiple savings goals, and investments to go along with them, your annual financial review should revisit each of your priorities. If your situation has changed, make adjustments as necessary. 

  • Saving for a new home or your children’s or grandchildren’s college education? You might want to adjust your target savings amount to reflect current real estate conditions and college tuition costs. 
  • Make sure you’re on track for retirement. Check your UC Retirement Readiness Score to help evaluate whether you’re saving enough to achieve your retirement savings goals at your desired retirement age. 
  • Bring your investment mix back in line. 19% of UC 403(b) Plan participants are invested in just a single fund—and that fund isn’t one of the diversified, all-in-one options available in the plan.* Since these participants do not have a diversified investment mix, they may not be able to reach their long-term retirement goals. So take the time now to check your investment mix. You may want to add or change funds to improve your diversification. If you have a preferred target investment mix, you may need to rebalance your account to ensure it stays in line with your target. 

3. You May Be Paying More Taxes than Necessary

If you’re not using UC’s tax-advantaged plans to save, you’re missing an opportunity to whittle down your current income taxes. 

  • Maximize your contributions to the UC 403(b) and 457(b) Plans. Contributions to the 403(b) and 457(b) Plans are made before taxes. When you save in these plans, you reduce your current taxable income, which in turn may help reduce the amount of income tax you pay. In fact, you get a double tax advantage from these plans: since you don’t pay current income taxes on your investment earnings, either, your money has the potential to grow more than it might if you saved in a taxable savings account. 
  • If you can, take advantage of additional tax-advantaged accounts. If you are enrolled in the Blue Shield Health Savings Plan, you get a triple tax advantage through the Health Savings Account (HSA). With an HSA, your contributions, earnings, and distributions are tax-free if you use them for qualified medical expenses, including dental and vision services. And unlike the Health Flexible Spending Account (FSA), the HSA has no “use it or lose it” feature. It’s yours to keep and use, now and in the future. 
  • Determine whether your tax assumptions need to be adjusted. For example, if you expect your income tax rate to be lower in retirement than it is currently, you might maximize your UC 403(b) and/or 457(b) Plan contributions now. Alternatively, if you received a big refund last year, you may be giving the IRS an interest-free loan. Consider changing your tax withholdings to help bring the amount that’s withheld from your paycheck in line with the estimated tax you owe. 

4. Your Estate Plan May Be Out of Date

Neglect is probably the biggest threat to an estate plan. Use your annual review to make sure your plan continues to reflect your current family status and financial situation. 

  • Did your family change this year? Marriage, divorce, birth, and death are the four big events that impact estate plans. 
  • Concerned about your grandchildren’s education costs? You might want to look into your gifting approach. The gift tax exclusion lets you gradually remove assets from your taxable estate. The limit in 2017 is $14,000 per person, which means you can give away $14,000 to as many individuals as you like. What’s more, spouses can each give $14,000 gifts. If you’re a grandparent of 10, for example, you and your spouse can gift up to $280,000 per year ($14,000 each to 10 grandchildren) without using any of your exemptions. Or consider contributing to a 529 college savings plan. 

5. Your Retirement Strategy Might Not Reflect Your Latest Priorities

Priorities change. Selling the family home and moving to Mexico might not sound as inviting today as it did before you had grandchildren, for instance. And that’s fine. But as your perspective changes, so should your strategies. An important part of your annual review should be to take stock of your retirement plan from the viewpoint of both lifestyle and financial needs. 

  • Nearing retirement? Check your progress toward establishing your retirement income plan. 
  • Already retired? Use your annual review to revisit your investment withdrawal strategy. As a general rule (although everyone’s situation is unique), it may make sense to withdraw money from your taxable accounts first, because long-term capital gains are taxed at significantly lower rates than the ordinary income tax rates you pay on withdrawals from traditional tax-deferred retirement accounts. At the same time, leaving your tax-advantaged assets in place allows them to potentially grow tax-deferred or tax-free. 

The Bottom Line 

An annual review is well worth the effort when you consider the hard work you have invested in building and protecting your savings.

* University of California and Fidelity Investments, data as of January 31, 2017.



Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money. 

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