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Financial checkup: Four things to do now

Get help preparing for whatever may happen in the markets with a financial checkup.

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Economic uncertainty has made the need for planning more critical than ever. It doesn’t have to be complex or time consuming, though. The place to start is with a quick financial checkup.

“When you’re driving on a twisting road, that’s when you need the highest level of certainty that your tires have plenty of tread and your brakes are working,” says John Sweeney, Fidelity executive vice president of retirement income and investment insights. “Careful planning is essential in all economic climates but it’s never more important than during periods of volatility."

A financial checkup serves several purposes. It allows you to evaluate and adjust your goals, and to take care of all the “housekeeping” items, such as updating beneficiaries, that aren’t complicated but that can have serious consequences if they’re neglected.

Here are four things to check:

1. Review your investing goals—or create some.
You probably have a few big things you’re saving for—a house, new car, a child’s education. For instance, if you have your eye on a new house or your children’s education, you might want to make some adjustments to reflect the current real estate picture and tuition costs.

Check your investment mix. Does it still meet your needs and preferences? Did market performance lead you to have more money invested in a particular area of the market?

Also, look at specific investments and see whether they continue to make sense for you. If you invest in mutual funds, check to see whether any of them have changed their objectives or “style.” If you own stock, look at the companies’ current picture and prospects, and decide whether they justify keeping it.

If you haven’t already done so, make sure you have a mix of stocks, bonds, and short-term investments that you consider appropriate for your investing goals. Take into account your financial situation, tolerance for volatility, and when you will need the money you are investing.

For instance, you may want to allocate a greater portion of your investments to stocks—which historically have offered the highest potential for growth over time—the longer you have to invest and the greater your tolerance for risk.

On the other hand, if you’ll need the money in just a few years—or if the thought of potentially losing money makes you too nervous—consider a higher allocation to generally less volatile investments such as bonds and short-term investments. By doing this, of course, you’d be trading the potential of higher returns for the potential of lower volatility.

2. Save on taxes as you save.
Some accounts offer a double dose of tax advantages. For instance, contributions to 401(k)s, 403(b)s, IRAs, and health savings accounts (HSAs) may reduce your current taxable income—saving you cash this year. Also, any investment growth in these accounts is tax deferred—saving you money while you are invested. In the case of HSAs, withdrawals used for qualified medical expenses could be triple tax free: tax-free contributions, earnings, and withdrawals.

What's more, because saving in these accounts can help lower your adjusted gross income, they may be able to help you avoid reaching the income limits for additional tax credits and deductions, like the student loan interest deduction or the personal exemption. “That’s a reason why we think a top financial priority for most investors should be to take advantage of IRAs, 401(k)s, and other workplace saving plans,” says Sweeney.

3. Name beneficiaries for your investment accounts.
No matter your age or net worth, designating a beneficiary for investment accounts can be as important as writing a will, but it is much less complex. Assets in a 401(k) plan, traditional IRA, Roth IRA, or SEP or SIMPLE IRA pass directly to the beneficiaries you've designated with your account custodian, trustee, or plan administrator. Furthermore, your beneficiary designations can supersede any accommodation you have made in your will for your retirement account (see transfer-on-death registration discussed below). Remember to name beneficiaries on all these retirement accounts.

For employer-sponsored retirement plans like a 401(k), if you’re married, keep in mind that most plans automatically designate your spouse as the beneficiary unless you name another beneficiary(ies) and your spouse has consented in writing.

Designating a beneficiary, or beneficiaries, on a nonretirement account, such as a brokerage account, may establish what’s legally known as a "transfer-on-death" (TOD) registration for the account. For an individual account, this allows ownership of the account to be transferred to a designated beneficiary upon your death. Perhaps most importantly, and in many instances, a TOD registration allows an account to pass outside probate, enabling your beneficiaries to avoid the time and expense of the probate process. As with all accounts, estate taxes may still apply. Be sure to consult your tax adviser.

Marriage, divorce, birth, and death are the four big events that can affect your beneficiaries, so if you have experienced any of these in your life, remember to take a look at your beneficiary designations and see whether you need to make any changes.

4. Make sure you have enough insurance.
Insurance can be great protection against the unexpected, but it’s wise to evaluate your needs annually to make sure you have the right amount of insurance in the right places.

Life insurance may be a good place to start. If your family is growing, you might want to increase the amount of your insurance to protect your loved ones from a devastating loss of income. On the other hand, most people find that as they get older—and their net worth climbs and their children reach adulthood—they need less life insurance. The considerations surrounding disability insurance are similar.

Odds are you’ve spent long hours finding the right auto or homeowner’s insurance. But what about disability insurance, which would replace lost income if you were unable to work?

In the case of injury or illness, it can be a lifeline—whether you’re laid up for a week or more than a year. Beyond replacing income, the right policy can help you pay for disability-related costs that aren’t covered by health insurance, from specialized medical equipment to home-based medical care. Without coverage, an injury that keeps you out of work for a week or a month could snowball into a serious financial issue if you don’t have enough savings to support yourself.

“Especially during uncertain times, it’s important to take the time to check in,” Sweeney says. “By staying focused on your goals and keeping your strategies current, you’ll be better prepared for whatever the economy has in store.”

Learn more

  • See whether your investment mix is in line with your long-term goals with Portfolio Review.
  • Review your current portfolio, and get analysis on U.S. stocks, bond, and sectors, and independent perspectives from Morningstar and StarMine with Fidelity Guided Portfolio SummarySM (login required).
  • Call your Fidelity investment professional at 800-343-3548 to set up a review of your financial plan.
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