Add These Five Things For Your 2018 Financial Planning To Do List

Make 2018 the year you finally get your finances organized

Photo by Green Chameleon on Unsplash

For better or worse, 2017 is in the history books. If 2017 was a great year for you, congratulations. 2018 presents an opportunity to build on that success. If you had a more challenging year, the new year offers fresh start, new opportunities and hope for a better future.

As you prepare for the year ahead, consider adding these 5 things to your 2018 financial planning to do list.

Update and review your financial plan. Most retirement plans are based on an assumption of how much money you need to spend in retirement. In my experience, this is one of the most difficult questions for clients to answer. Should future retirement spending be based on a percentage of what you spend now, or should it be adjusted for changes to your spending needs in the future? How can you really know what your expenses might be 10, 20 or even 30 years down the road?

In many cases, I believe people underestimate their retirement income needs. They estimate their needs based on what they think they will need to pay the regular, recurring bills that come due every month. Rarely do they take into consideration the more occasional expenses that seem to come up all the time.

Expenses like vacations, unexpected medical bills (not to mention ongoing medical expenses like Medicare premiums, copayments and deductibles), home repairs, the occasional new car, adult kids who may need financial help, etc. The list is virtually endless. As you update your retirement plans for 2018, review your spending assumptions to be sure are accurate.

Health Care Directive. If your spouse or adult kids had to suddenly make medical decisions on your behalf, would they know what to do? Would all the interested parties agree on the right next step?

Even if they do know what you want, will the right people in your life have the documentation they need to meet your wishes? Can your health care agent put their finger on these documents at a moment’s notice? Would they even know where to look?

Sadly, the answer is usually “no”.  If that is true in your family, talk to an attorney or other professional about the benefits of having a well thought out health care directive and the importance of being able to retrieve it at any time, from anywhere. Your financial advisor or estate planning attorney may have access to these documents as well. Ask them how they can help.

Update beneficiary designations. Of all the documents you have, the most important may be the beneficiary designation form for your IRA, 401(k) and other retirement plans. With very few exceptions, the law says that whomever is listed on those documents is the rightful owner of those assets at the moment you die.

Most people get this one right, but it’s still an easy thing to mess up. Review your beneficiary designation forms as soon as possible to be sure that only the people you want as beneficiaries are listed as beneficiaries.

Once you have determined that you have the correct beneficiary, review your secondary beneficiary to ensure that information is correct as well. This is where most of the mistakes are made. Clients typically list their spouse as primary beneficiary (as it should be in most cases). But they fail to list a secondary beneficiary(ies) if the primary beneficiary (your spouse) dies first.

If you have questions about your beneficiary designations, ask your financial advisor or attorney to review these documents with you.

Inventory your assets. A financial inventory includes a list of your financial assets, any debts you may have, your insurance policies, and the contact information for any professionals associated with those accounts. If you have a good financial plan that is updated regularly, this should be done already and may even be available online.

Once a year or so, print out a list of your financial inventory and keep it with your important documents. Review it for accuracy and let your spouse or personal representative know where your financial inventory is located. If something happens to you, they will want to know what you have and where to find it.

Review your risk level. Stocks still trade at all-time highs, but markets can fluctuate greatly. If the stock market lost 10%, how would you react? What about 20%?

In the period between October 2007 and March 2009, the S&P 500 lost over 50% of its value. Are you prepared to ride out that type of correction if/when it happens in the future?

Everyone is comfortable with stock market risk until things start going in the other direction. 2017 was a great year by any standard, but we all know that markets don’t go straight up forever. While I am optimistic about the economy and markets for 2018, it makes sense to reevaluate how much market risk your IRA and other investments may be exposed to and adjust accordingly.

Ask your financial planner or investment advisor to show you how much your portfolio could go up or down in various market conditions. If your portfolio is exposed to too much stock market risk, consider adjusting your portfolio now while markets are still high.

Check your calendar and mind your dates. Your financial life is filled with milestones. What milestones will you hit this year and what does that mean for your financial planning?

When kids graduate from high school, college bills will start to come due. When minors turn 21, any money in their name, becomes theirs to do with as they please. If you turn age 59 ½ this year, you may begin taking distributions from your IRA penalty free. At 62 you will need to make decisions about Social Security benefits. At 65 Medicare kicks in. Age 70 ½ brings IRA Required Minimum Distributions.

And those are just the age-related dates and deadlines to consider. Every calendar year brings its own set of deadlines.

College tuition may need to be paid in January and again in August. IRAs must be funded by April 15th, college applications and financial aid deadlines occur in October, employer open enrollment periods happen in the fall, and RMDs must be met by December 31.

What other time sensitive deadlines are on your calendar for 2018?

A resolution for the New Year. Make 2018 the year you finally organize your finances and tie up any loose ends that may exist.