Why You Need An Annual Financial Physical Exam

Whether you are single, engaged to be married, or celebrating your 25th wedding anniversary, you need to have a detailed financial plan in place to achieve your long-term goals. But establishing a financial plan is not a “set it and forget it endeavor.” Just as you should get an annual physical examination to ensure your physical well-being, you and your partner should revisit your financial plan annually to ensure your financial well-being.

A financial plan is about more than investments. You also need to consider your income and expenses, insurance, debts, and how changes in your personal circumstances may require you to make adjustments. Here are five essential elements that your financial plan should encompass, as well as factors to discuss with your financial advisor and your partner annually (or more often as necessary):

  1. Income and household expenses: When your (or your partner’s) employment status changes, that can have a huge impact on your monthly cash flows. If one partner loses his or her job, you may need to revisit your savings goals and examine ways to reduce your spending. Conversely, if you score a big job promotion and a salary increase, this may present an opportunity to add more money to your retirement savings portfolio or pay down your mortgage early.
  2. Mortgage and other debts. If interest rates have declined significantly since you first took out your mortgage, this may present an opportunity to reduce your monthly mortgage payment by refinancing your loan. Similarly, if you are carrying a high amount of student loan debt, it may be possible to consolidate those debts at a lower interest rate. An annual review of your debts can help ensure you don’t miss these opportunities to reduce your expenses.
  3. Health and life insurance. If you or your partner changed jobs over the past year, it may be wise to revisit your supplemental health insurance policies to ensure you’re optimizing your benefits. If you were formerly enrolled under your partner’s plan, it might make more sense for you and your partner to enroll in your new employer’s plan if the benefits are better.
    Other major life changes, such as becoming parents for the first time, may necessitate a review of your life insurance policies. You may want to increase your life insurance coverage to ensure your child’s future college education expenses will be covered if you or your partner were to die prematurely. The birth of a child is also the right time to start an education savings plan. Remember, with Registered Educations Savings Plans (RESPs), qualified contributions up to $2500 per year get a 20% government grant – never miss out on the “free” money!
  4. Retirement savings plans. To ensure you can retire with confidence, you should plan to review your retirement savings progress annually. This assumes you have taken the critical first step of establishing retirement savings goals. Once that’s done, both partners should vow to sit down with their financial advisor annually to review your plan’s assumptions and progress. It’s possible that you could be exceeding your goals. In that case, you might be pleasantly surprised to learn that you could splurge on that Caribbean cruise vacation you’ve been dreaming about. Conversely, if you find that you’re falling behind, you can discuss ways to correct course.
    As part of the plan single process, you need to ensure you are prepared for the possibility of becoming single again. Therefore, your annual review is also the right time to ensure the beneficiary designations on your retirement accounts and insurance policies are up to date.
  5. Tax Loss Harvesting. If you own investments in taxable accounts, you may have opportunities to reduce your tax liabilities by selling investments that have declined in value, booking capital losses, and replacing them with similar investments. This process, known as tax-loss harvesting, should be reviewed in conjunction with a tax-planning professional.

All of these examples present an opportunity – an opportunity to improve or protect your financial health both today and tomorrow. A financial plan should be a living, breathing document. Plan to sit down with your partner and your financial advisor at least once per year to ensure you’re on track to meet your goals. In between your annual review, check in and communicate with your partner regularly to avoid any unpleasant surprises.

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