Face it, there are far more interesting things to do than review financial statements, employer benefit reports, or insurance coverage.
“With kids, family obligations, and 200 TV and cable channels all competing for our attention, it is hard to be proactive about finances,” says Mark LaSpisa, certified financial planner with Vermillion Financial in South Barrington, Illinois. Yet, settling for the alternative — being reactive — has its price. Like finding out too late that a retirement plan is under-funded, a mortgage has been unduly costly, or that years’ worth of insurance premiums were buying insufficient coverage for a claim.
“While most people just want to get their taxes done and filed, tax time is actually an ideal time for an annual review,” says Bob Meighan, certified public accountant and vice president, with TurboTax in San Diego. “All the papers and files are already out, and it is the one time each year when the focus is on finances.”
Fortunately with the proliferation of online resources, calculators and software, performing an annual tune-up is far less time-consuming than it used to be.
What specifically do experts feel should be reviewed annually?
The family financial statement
“Comparing this year’s to last year’s provides a quick answer to the question: Am I headed in the right direction?” says LaSpisa.
Banks and brokerage firms, like Bank of America, actually allow clients to aggregate account balance information from various sources online and onto one screen, completely automating the process. Offline, software programs like Quicken and Microsoft Money can be used to track annual net worth (calculated by subtracting total liabilities from total assets).
Expenses
Quicken and Money also make tracking spending by category as easy as a couple of clicks as do some online banking providers. Wells Fargo, for instance, through its My Spending Report option, makes categorizing spending automatic for its clients, allowing them to see exactly where their money goes during the year.
LaSpisa suggests spouses review expenditures — past and planned — together to eliminate surprises and the potential for spending at cross-purposes. Where children are concerned, he also recommends an annual review of allowances to ensure they are realistic for each child’s age.
Retirement calculations
While hiring a professional would result in more thorough analysis of whether retirement savings is on target, online calculators such as those found at ChooseToSave.org can help make quick assessments. They also allow users to make projections over a variety of ‘what if’ scenarios.
Social Security statements
LaSpisa suggests reviewing the annual benefits statement the Social Security Administration mails out each year since errors or omissions are the responsibility of each taxpayer. With so many companies merging and disappearing, attempting to straighten out an erroneous withholding entry 20 years after the fact could be rather impossible and harmful to a taxpayer’s final benefit calculation.
Asset allocations
Though reviewing investments and how they are invested should be ongoing, with most investors’ savings concentrated in their employer-sponsored 401(k) plans, it is easy to forget to regularly review and update allocation selections for current market conditions. Also, because limits on contributions keep rising, Meighan advises verifying that current levels reflect the maximum allowable — something that will pay off in the coming tax year.
Reviewing beneficiary designations on all investment and savings accounts along with wills is also advised. “Laws change, relationships change, health changes — documents that were completed years earlier may no longer reflect current wishes or financial reality,” warns LaSpisa.
Employer benefit statements
Meighan points out that while many employees make use of the tax-advantaged cafeteria plans offered by their employers, many end up leaving money on the table each year. “Reviewing allocations to ensure the money being set aside will be spent is important,” he says. As is reviewing vacation time, since it is very easy to let it lapse. By reviewing it in April, plenty of time remains for making plans that will use it up.
Mortgage terms
With interest rates constantly fluctuating and an abundance of mortgage products, chances are there is a way to lower monthly payments. Online tools offered by E-Loan, Wells Fargo, or LendingTree allow borrowers to determine if a better loan structure exists.
Borrowers who are subject to PMI should also revisit their home value annually. Given the rise in real estate prices nationally, their home’s value may have risen beyond the 20 percent level allowing them to request cancellation of the PMI.
Annual withholding and estimated payments
“Since taxpayers control withholding, they should be looking at this annually to make sure it is the right amount,” advises Meighan.
Because so many taxpayers look at over-withholding as a form of forced saving — they count on having a refund each year — he suggests they review withholding amounts to make sure they get what is ‘right’ for them from their tax filing.
Insurance coverage
With the news full of the devastating effects of natural disasters on personal property, revisiting coverage and deductibles is important, says Meighan. In addition to ensuring coverage keeps up with higher home values and the acquisition of more personal property, increasing deductibles can make added coverage more affordable, since agreeing to cover more of the out-of-pocket expenses leads to significantly lower annual premiums.
Other areas to revisit, says LaSpisa, are long-term care and disability coverage. “Often people buy long-term care or disability insurance coverage and never look at the policies again, or not until they need to file a claim.” If that coverage is not adjusting for inflation or if the disability in particular is not keeping up with income, it will become inadequate with time.
Credit reports
LaSpisa recommends reviewing all three credit bureaus’ reports along with FICO scores annually. All three may be accessed through any one bureau — TransUnion, Experian, or Equifax, as well as sites like MyFICO.com. Consumers are also entitled to one free report annually through the central site, AnnualCreditReport.com.
“With all the concerns for privacy and identity theft, it is a good idea to check annually,” says LaSpisa. “Too often people are surprised they are disqualified or will have to pay more when they apply for a mortgage because of something erroneous in their credit history,” he adds.