I clean my septic system’s filter twice a year – a terrible job that I do myself because it’s pretty quick and easy, even though it’s so gross. I still remember the septic man’s technique for remembering when to do it: “Check it at spring training and the World Series.” This exposes it twice a year when it is not covered in snow.
When it comes to financial planning, we can use another calendar event as a similar reminder for a quick financial check: the middle of the year. Mid-year is a good time to revisit your New Year’s resolutions, if they were financial resolutions, and recommit if necessary.
A few points that are always worth looking at:
Start with your 401(k) contributions. The 401(k) contribution limit increased to $24,500 this year, with higher limits for those age 50 and older. While only the lucky few are able to save to the limit, everyone can use a reminder to consider increasing their savings a bit – research shows that many retirees regret not saving more at work.
Most people set a contribution rate when they start working and never touch it again. It may have been years since you last checked how much you donate. If so, take five minutes and look at your contribution rate. How much do you want to save this year? Do you have the opportunity to increase your savings? July is a good time to adjust your savings without cramming an unrealistic amount into your last paycheck of the year.
Check your beneficiaries. Now is also a good time to review the beneficiaries of your accounts and life insurance policies. Accounts like IRAs typically have a named beneficiary who inherits the assets directly, avoiding the probate process. If changes have occurred in your life, such as a divorce or the death of a loved one, it is important to update named beneficiaries. Review all life insurance policies, investment accounts, retirement accounts, and even bank accounts to see if there is a named beneficiary (or transfer instructions upon death).
Review your tax planning. Keep in mind that there are some new temporary tax deductions from last year’s tax bill. The senior citizen bonus deduction gives filers age 65 and older an additional deduction of $6,000, or $12,000 for married couples where both spouses qualify. This new deduction applies through 2028 and may change the way your tax deduction should look. Other new deductions are available for tipped workers and some people who work overtime. Review these tax rules now and make adjustments to withholding if necessary.
Opt for qualified charitable deductions. If you are interested in charitable giving and are at least 73 years old, you should consider qualifying charitable distributions (QCDs) now, not in December. The cap for people with QCDs from IRAs increased to $111,000 this year. Every December, I see people scrambling to move money before the calendar expires, increasing the likelihood of an error or missed deadline with your custodian. Deciding now, while you have time to do it consciously, is better than acting in a panic later.
Review (and possibly rebalance) your portfolio. The markets have changed significantly in recent years. If you have a target allocation to stocks versus bonds and your assets have not recently been rebalanced (which happens automatically if you have a target fund), your current portfolio could be out of balance and likely overweight due to equity outperformance. Rebalancing is an easy way to manage risk.
Use this time to get organized. This suggestion may sound too vague, but I have rarely met anyone who has organized their finances the way they would like. Take advantage of this mid-year opportunity to consider combining those old 401(k)s into a single rollover IRA account (but be sure to keep in mind the IRA fees, which are often higher than 401(k)s), close those empty bank accounts, track your spending, and do whatever else you need to feel more organized.
I know a lot of people who track their finances manually. I don’t have a problem with that per se, but what happens if someone else has to take over? Do what you can now to create a system of records that you can easily share when needed.
If a mid-year checklist seems like an easy way out of a columnist’s obligations, all I can say is that sometimes it’s important to go back to basics. Important things are often pushed aside by the emergencies of the week and the routine of everyday life. Re-examine your accounts, create a slightly better organizational structure, adjust your retirement savings, or make some other small positive change – and you won’t regret it.
Luke Delorme, CFP® is Director of Financial Planning at Tableaux Wealth in Great Barrington, MA (www.tableauxwealth.com), available at luke@tableauxwealth.com. To stay up to date with the Squared Away blog, join our free email list.
This blog post is for informational and educational purposes only and should not be considered financial advice. Please contact a qualified professional for advice tailored to your situation.
https://crr.bc.edu/a-mid-year-money-checkup-can-help-fine-tune-your-finances/
