Donna LeValley
If you’re like most people, you probably started off 2024 with lofty financial goals and ambitious New Year’s resolutions that by now have long since been abandoned. Take heart. There’s one resolution that’s easy to keep because it’s typically a once-a-year commitment.
Like an annual physical, an annual financial review can keep your finances healthy. “We all go on this health checkup every year, but your wealth checkup could be even more important for your long-term well-being,” says Daniel Hill, a certified financial planner and president of Hill Wealth Strategies in Richmond, Va. A review is worth doing even if it seems like nothing has changed. (Financial planners usually recommend that you review your finances after major life events or whenever your goals need adjusting.) Best of all, once you get this job over with, you can generally forget about it for the next 12 months.
An annual financial checkup is always a good habit, but “the more volatility and uncertainty in the world, the more you want to double check,” says Adam Goetz, a partner at Burstin & Goetz, a financial-planning firm in Pittsburgh, and the national president of the MassMutual Advisors Association.
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In fact, a financial review may especially be in order now because 2024 was such a momentous year: there were national elections that upended the political party in power in Washington. As the new 119th Congress is sworn in, and the debate over extending and expanding the TCJA cuts and restoring the SALT deductions get underway, 2025 will not be a dull year.
Then there are the potential changes to Social Security. While campaigning, President-elect Trump proposed excluding retirement benefits from income taxes and the House has passed a bill to repeal the Windfall Elimination Provision (WEP) and the the Government Pension Offset (GPO).
1. Review your monthly budget
The biggest thing likely to change is your budget. “I asked my friend who owns a dry cleaner how he’s doing and he’s getting crushed,” Hill says. “People just aren’t spending the way they used to.” Remote working and a more casual approach to dressing has impacted business.
Chances are, you’re spending less on gas, auto repairs and, yes, dry cleaning. On the other hand, you may be spending more on home improvement, groceries, energy, online shopping and health care. Meanwhile, the buying power of savings probably got haircut from the rampant inflation over the last few years.
As you consider what 2025 has in store for your finances, start by checking monthly bank and credit card statements and organize your spending into categories: housing, groceries, travel, entertainment, and so on. Then, compare the actual spending with that of prior years to see how you fared. To balance out unusual swings, Hill recommends basing your budget on your average spending for the past three to five years.
You should also check whether you have enough in cash savings for 2025. “I recommend people divide their savings in terms of buckets,” says Hill. “For example, they might have one account for their emergency fund, one for the vacation fund, and one for day-to-day expenses.” Each bucket should have enough to cover your expected spending. If not, top them up.
Whether you’re retired or not, your emergency fund should have enough cash to cover at least three to six months of living expenses. The last thing you want is a sudden cash crunch forcing you to make a large withdrawal from your taxable retirement plans, potentially pushing you into a higher tax bracket.
This is also a good time to check your credit reports and credit scores from the rating agencies (Experian, Equifax and TransUnion) and correct any errors you find. If last year left you with more cash on hand, Hill suggests putting this money toward paying off credit card debt and boosting your credit score as much as possible. “With interest rates so low, this is one of the best times to have strong credit,” he says. “You could literally save thousands of dollars by refinancing your mortgage at a lower rate, thanks to an improved score.”
2. Assess your investment portfolio
Many investment professionals recommend rebalancing a portfolio regularly, typically every six to 12 months. Take a moment to think about whether your financial goals have changed. Have you transitioned from saving for a home down payment to saving for retirement at 65? Your investments should reflect the changes in your life.
For example, let’s say your goal was a 50/50 split of stocks and bonds, if you had strong returns in 2024, and your portfolio now has 65% in stocks; you are at a correspondingly higher risk. You need to rebalance, selling stocks and buying bonds until you get back to your 50/50 target. Hill tells his clients to rebalance their portfolios quarterly.
Goetz says rebalancing is especially important in a volatile market. “We all hear this advice, we all know we should do it, but often people just don’t, especially during good times.” When markets are soaring, there’s a real temptation to keep more money in stocks. That’s a risk people nearing or in retirement, who need to draw income from their investments, can’t afford.
He tells clients: “The goal of your asset allocation is to protect your portfolio and maintain your long-term income options, rather than generate immediate gains.”
You should also consider whether your savings will safely last based on your withdrawal rate, expected returns and tax bracket. “You can’t blindly just take out 4%, 5%, of your portfolio each year and hope it works out, especially given unprecedented long life expectancies and low interest rates,” says Goetz.
A financial adviser can run simulations to see whether your portfolio can generate the income you need. You could also run the numbers yourself using Kiplinger's free retirement calculator.
3. Plan ahead
You should also double check the primary and contingent beneficiary listings on your retirement plans and life insurance policies. “It happens all the time. A client walks in thinking they’ve got their beneficiary all in order on their 401(k), and then it turns out they didn’t even have one,” says Hill. It’s a simple fix to name someone on these accounts. Beneficiaries bypass probate and receive the funds directly when the account owner or policyholder dies.
Tax laws and regulations are in flux, especially with a new political administration. Many of the provisions affecting individuals in the 2017 Tax Cuts and Jobs Act are slated to expire after 2025. This includes lower individual income tax rates, higher standard deductions and the bigger lifetime estate and gift tax exemption.
You may want to meet with an adviser or an accountant to consider any material changes and anticipate their effects on your financial plan. If you’re a do-it-yourselfer, a class or seminar through an educational institution or nonprofit organization, rather than a financial company’s sales pitch, may be in order. “Look for an instructor whose top goal is to teach, rather than moving product,” Hill says.
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