Mid-Year Financial Checkup
The midpoint of the year can be a good time to step back and assess your financial goals to make sure you’re still on track given any changes in the economy and markets as well as your personal situation.
The first half of 2017 has lived up to most of our expectations. We expected the U.S. stock market to deliver a mid- to high-single digit return for the entire year, and through the end of May, that return was almost 9%. GDP growth has been lower than expected, although the second quarter should show better results. We anticipated that bond yields would stay under 3%--and after rising as high as 2.6%, the 10-year Treasury yield has dropped back under 2.25%.
We think the outlook for the rest of the year is favorable, but there are some specific ideas on which to focus. Depending on your unique situation, you may want to speak to your advisor to see if any of the following should be addressed.
1. Review Your Investments
From an asset allocation standpoint, our current view is to overweight equities, in particular U.S. equities. We recently moved to an overweight recommendation for non-U.S. large cap equities as well, reflecting the better valuations and solid economic fundamentals outside the U.S. Diversification into international stocks and emerging market stocks have not been rewarded since the stock market bottom in 2009. In fact, they have delivered only a little over one-half of the total return provided by U.S. stocks. This has made many investors reticent to allocate assets to international investments.
However, the U.S. stock market is more expensive than some other markets—by some measures, U.S. stock market price/earnings ratios are 10-20% above historical averages. In light of this, allocating some assets to international equities could be a prudent decision.
2. Maximize Contributions to Tax Advantaged Retirement Accounts
Make sure you’re taking full advantage of your company sponsored retirement accounts. Now is a great time to check in and see if you’re on track to contribute the maximum amount for 2017 ($18,000 plus a $6,000 catch-up for those over 50). If you received a raise early this year, try to increase your retirement savings rather than increasing your spending!
3. Review Employer Provided Benefits
Maximize all employer provided benefits, including medical and dental insurance and high deductible health plan/HSA account contributions.
4. Review your Social Security Statement
It’s up to you to review your Social Security statement to ensure your earnings history and work credits are accurately reported and to take action to correct any mistakes before you file for benefits. Although the Social Security Administration no longer mails out annual statements, you can still obtain a copy of your statement by creating an account online at www.ssa.gov.
5. Review your Tax Withholdings
Tax season has come and gone and now is a good time to adjust your tax withholdings. Get a large refund this year? Consider reducing your withholding and bump up your savings rate. Did you have to write a large check to the IRS in April? You might want to increase your withholding to avoid underpayment penalties when you file.
6. Adjust Your Estimated Tax Payments
If you’re making quarterly estimated tax payments, the next payment is due on September 15th. Check in with your CPA in August with a year-to-date summary of retirement income, investment income, realized capital gains and deductions to make sure your estimated payments are on track and don’t need to be adjusted before the 9/15 deadline.
7. Review your Credit Report
When was the last time you reviewed your credit report? A 2012 study by the Federal Trade Commission reported that 5% of consumers have errors on one of their three major credit reports. Errors on your report could ultimately cost you a loan, result in higher interest rates or disqualify you from a job! It’s important to review your credit report each year for accuracy. You are entitled to one free credit report from each of the three major credit bureaus each year and can obtain one by using www.annualcreditreport.com.
8. Shop Smart for Medicare
Medicare Open Enrollment runs from October 15 through December 7th every year. It’s not too early to start thinking about your coverage options – don’t wait until the last minute! Plans vary and can change each year, so don’t assume there’s nothing better out there. Do an annual Medicare insurance check-up, particularly if you’ve moved, changed doctors or prescriptions, have a change in health status, pay high out-of-pocket costs or if your premiums have increased. Additional resources are available through www.medicare.gov or www.eldercare.gov.
9. Review your Estate Plan
Despite best intentions, far too many individuals neglect reviewing the estate planning documents they have in place. We suggest reviewing the following:
- Update your current will and trusts to reflect changes in your life and also to ensure they are aligned with current federal and home estate tax laws.
- Review living will, healthcare proxies and durable power of attorney documents to ensure your current wishes are reflected.
- Review beneficiary designations for investment accounts, retirement accounts and life insurance policies to ensure they are aligned with your current estate plan.
- Parents of minor children should review guardianship designations.
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