5 Reasons To Review Your Financial Plan Annually

Five Reasons To Review Your Financial Plan Annually

As your financial advisors at Continuum II, you have heard us tell you about the importance of an annual review. With tax season quickly approaching, and contribution deadlines coming to a close, now is the perfect time to review how you are doing.

When it comes to managing your finances, having a financial plan is essential. If you have finances, you need a financial plan. Just as car insurance protects your vehicle, a financial plan helps to protect your assets over time. To ensure your strategies align with your goals, your financial plan should undergo regular examination. Emphasizing this, the following lists 5 reasons to review your financial plan annually. 

1. Your goals might have changed.

Because you may have multiple goals, your financial review should explore each of your goals separately, highlighting which goals take priority.

For Example:

• If you’ve been saving for a new home you might want to adjust your savings to reflect current real estate condition.
• If your children are approaching post-secondary age. When is the last time you checked the cost of post-secondary tuition costs?  

This is also the time to check the asset mix of your investment portfolios. Doing this ensures that your investments continue to meet your needs and preferences. In addition, it allows you to perform any rebalancing that might be necessary in light of the past year’s market performance.

 *If your situation has changed, your advisor can make suggestions, helping you to make adjustments as necessary

2. You may be paying more taxes than necessary.

Your annual review is a great time to ask your adviser about tax-efficient strategies you might be missing. Such strategies include knowing the types of accounts to invest in, and where to hold equities versus fixed income investments. Different types of investments get different tax treatments. Take advantage of tax savings by contributing to tax-advantaged vehicles such as a RRSP or a TFSA. Tax-efficient saving strategies will help you reduce taxes and boost your after-tax income.

Your advisor can help you structure a tax efficient portfolio, determining which investments should be held in tax-deferred accounts and which securities should be held in taxable accounts in order to maximize after-tax returns.

3. Your estate plan may be out of date.

One of the most important aspects of estate planning is having a will. A person’s last

will and testament is the foundation of any estate plan. A recent study in the USA suggests that less than 50% of American’s have a valid will-A figure that is relative to what we would expect to find here in Canada!

Use your annual review to make sure your estate plan continues to reflect your current family status and financial situation. Ensure that key individuals know where to find relevant documents and information. Marriage, divorce, birth and death are the four big events that affect estate plans, but you may also want to consider other factors that could influence your planning.

For example:

If you’re concerned about your grandchildren’s education costs, you might want to look into contributing to an RESP now while you are alive. Grandparents may be able to open a family plan RESP, which can have multiple children in a family as beneficiaries. If one child ends up not going to university, a family plan allows his or her siblings to use the money in the plan.

4. Your retirement plan might not reflect your latest priorities.

An important part of your annual review should be to take stock of your retirement plan from the viewpoint of both lifestyle and financial needs. Has your retirement date changed? Are your savings on track to meet your retirement income goals? Or will you need to work longer than originally planned?  

It is also a good idea to review what your anticipated retirement expenses will be. Many factors could change the expense side of the equation, ranging from health and marital status to your evolving interests and tastes. On the income side, use your annual review to check your progress toward establishing your retirement income plan. If you’re nearing retirement, an advisor can help you determine how your current wealth could be structured to provide the income level you need – or identify shortfalls and recommend strategies to address them.

Check your tax assumptions and determine whether they need to be adjusted.

• If you expect your income tax rate to be lower in retirement you might want to consider maximizing your tax-deferred savings now.

If you’re already retired, use your annual review to revisit your investment withdrawal

strategy. Leaving your tax-advantaged assets in place allows them to potentially

grow tax-deferred, or tax-free (in the case of TFSAs). Your investment withdrawal strategy should be structured in a way to help you achieve maximum tax efficiency, and should be customized to your overall investment strategy.

5. Your insurance needs and beneficiaries might need updating.

Insurance is great protection against the unexpected, so it’s wise to evaluate your insurance plan annually. If you are just starting out and your family is growing, you might want to increase the amount of your life insurance. Doing so protects your loved ones from a devastating loss of income on top of the emotional pain of losing a parent or spouse. Most people find that, as they get older – and as their net worth climbs and their children reach adulthood – they need less life insurance.

Another important type of insurance to acknowledge during your financial review is disability insurance. Do you have disability insurance? If not it is also a great way to protect your income if for some reason you can’t work. In all, it is important to remember the following when reviewing the insurance portion of your financial plan.

• Life insurance can be used for estate planning or to pass on the family cottage. For some Canadians, if a cottage has been in the family for generations, transferring the property from one generation to the next can trigger substantial capital gains taxes.
•  One strategy to the taxes can be to set up a life insurance policy to fund future capital gains taxes triggered by the death of the cottage owner.
• As you age you might also benefit from looking into long-term care insurance, which provides funding for when you are no longer able to care for yourself.
• A final consideration in your annual review is a simple check of your beneficiary designations for insurance policies, RRSP’s and TFSA’s. It’s easy to do, but it could have a negative impact if it’s neglected.

To summarize, reviewing your financial plan annually helps you to stay focused on your financial goals and protect the assets you’ve worked hard to establish. By managing the present, you can better prepare yourself for the future.

If you have any questions, please feel free to contact us at the office.

Also, don’t forget the deadline for RRSP contributions is March 2^nd