It’s been a turbulent year. December is a good time for a financial plan review

More so than most years, 2022 has featured several significant changes in the landscape of personal finances. Declining investment account values, higher cost of living, more expensive debt financing and improving options to actually get paid for your basic savings accounts, all provide reasons for a year-end financial plan review.

There is no one-size-fits-all financial plan or checklist, but the following categories are a good starting place for an hour or two of your attention over the next month.

Assess the impact on your long-term financial plan. Tempestuous investment markets mean lower account balances than a year ago for most investors, but what impact has that had on your progress toward your goals? If you are approaching retirement, has there been enough decline that you should consider changing your targeted freedom-from-work date? Are there any new considerations in your life that should be evaluated with a new “what if?” scenario in your financial plan? These are the types of questions a financial advisor should be able to help with if you can’t confidently evaluate them on your own.

Evaluate your investment portfolio. How does the balance of stocks vs. bonds across your accounts compare to your intended target weights? Do you need to rebalance? How have your investments performed compared to appropriate indexes or their peer group? Are there performance laggards in your accounts that should be flagged for replacement? Did you retreat from investing during the bear market, perhaps holding your contributions in cash, unsure how to proceed? If so, re-evaluate how to position that money for your long-term benefit.

Consider tax-related options. As part of rebalancing, evaluate investments outside of tax-deferred retirement accounts. Do you have investments that have declined in value since purchase? Is it worthwhile to sell them and use the realized capital loss against capital gains elsewhere to reduce your taxes? Should you consider converting some current pre-tax IRA money to after-tax Roth character? If you prefer to pay a known tax rate today rather than an unknown, possibly higher, tax rate in the future, you may be able to convert more shares of investments now than you could have a year ago. Assuming a return to growing market values over time, more of that growth would then be captured tax-free.

Maximize your retirement plan contributions. When the calendar turns to 2023, contribution limits for 401ks and IRAs increase. You will be able to contribute up to $22,500 to a 401k or $6,500 to an IRA, with additional “catch-up” amounts available if you’re 50 or over. You may need to change the automated funding of these accounts to take advantage of these higher limits.

Make sure your cash is working as hard as it can. Now that interest rates have increased, income available from money market funds, CDs and online high-yield savings accounts is now attractive (above 3.0 percent in most cases). Don’t leave your idle cash sitting in a bank account earning nothing.

Re-evaluate your needed “comfort money”. If your cost of living has grown, your emergency fund may have declined while covering increased costs. Decide how much money you need to have set aside in the just-in-case fund. Especially if your employment is fragile heading into a potential economic recession, think about building up more cash reserve.

Complete annual IRA distributions, if required. If you are over age 72 and have money in a pre-tax IRA or employer retirement account, you need to complete a minimum annual withdrawal. Failure to do so comes with one of the largest tax penalties the IRS applies, 50 percent of the amount you should have withdrawn.

Review your tax withholding. Did you owe more than expected on your last tax return, or receive a large refund (meaning you essentially gave the government an interest-free loan over the course of the year)? Adjust your income tax withholding on your employment income or forms of retirement income.

Review your beneficiary designations. Retirement accounts and life insurance policies have designated beneficiaries who receive the money upon your death. People commonly fail to name a beneficiary or to update the listed beneficiary if a life event, or personal preference, dictates.

Confirm your will or trust instructions. This task has less to do with investment market declines or inflation but life circumstances do change. You should periodically review important estate planning decisions that you made in the past. And if you haven’t formally made those decisions yet, move it to the top of your 2023 resolutions list.

Your situation may come with a few other items that need a little proactive attention. Ideally, this exercise will build confidence that your financial plan and investment decisions are in good order.