Now that we have reached the midpoint of 2014, it is a fine time to do some financial housekeeping, particularly as it relates to a person’s financial information collected and maintained by others. Checking your Social Security statement, credit report, and employer-sponsored savings plans probably will only take a few minutes. If inaccuracies are discovered, it will take a bit longer to resolve. However, identifying and resolving any problems now probably will take less total time than waiting to address it down the road. When it comes to the seemingly mundane tasks of reviewing certain financial records there is merit in Benjamin Franklin’s quote that, “An ounce of prevention is worth a pound of cure.”
For folks who paid into Social Security during 2013, it is a good idea to review your Social Security Statement, which is accessible at http://ssa.gov/myaccount/. The statement provides a year-by-year record of your earnings along with an estimate of your future benefits.* It is important to ensure your earnings record is accurate because this is the information the Social Security Administration uses to determine if you have sufficient credits to be eligible for retirement, disability, and/or survivor benefits along with the dollar amount of those benefits. If you find an inaccuracy, there are instructions on the statement for correcting the error.
Your credit report is another item to check on an annual basis. Actually, there are three credit reports that need to be reviewed, one from each of the three credit reporting agencies: Experian, Equifax, and TransUnion. Federal law allows you to obtain one free credit report from each agency every 12 months. Checking all three reports is recommended since the information on file at Experian, Equifax, and Transunion may differ. You can obtain all three reports at one time during the year or you can stagger their timing, for example, by checking a report from a different agency every four months. To access the credit reports from all three agencies visit https://www.annualcreditreport.com/
Why is it important to review your credit report? The report contains a lot of your financial information including address history, current and past credit accounts (credit card, home, auto and student loans), payment history, and bankruptcies. Banks, landlords, utility companies, cell phone companies and a host of other entities use your credit report to determine whether or not to do business with you and to gauge how likely you are to repay your financial obligations. For example, banks use credit reports to help determine if they should lend to you and what interest rate to charge.
Therefore, reviewing the information on your credit report is essential for identifying inaccuracies and helping spot identity theft. When reviewing your reports, questions to consider include:
1) Are my name, address and Social Security Number accurate?
2) Do the accounts listed look familiar, accurate, and up-to-date?
3) Are there accounts on the report that belong to someone else?
If you spot inaccuracies, contact the respective credit reporting agency (Experian, Equifax, or TransUnion) using the instructions described on the report.
Another mid-year financial housekeeping task relates to folks participating in workplace sponsored 401(k) and 403(b) retirement plans, and/or most 457 deferred compensation plans. If you participate in one or more of these plans, then consider taking a moment to confirm that you are on target to contribute the desired amount for the year. For 2014, participants can make elective deferrals up to $17,500, and employees age 50 and over who are participating in these plans can contribute an additional $5,500. When determining how much to contribute per pay period, if you have to specify a percentage rather than a dollar amount, then it is worth verifying that the corresponding dollar amount being contributed matches your expectation. One of our clients recently discovered that her monthly 403(b) contribution was being based on a previous year’s salary rather than her current salary. Fortunately, she had the error corrected with sufficient time remaining in 2014 to get back on track to reach her annual contribution target.
Because errors do occur, we at Woodward Financial Advisors believe folks should routinely stay on top of their financial information. After all, there is wisdom in the Russian proverb made popular in the U.S. by President Reagan, “Trust but verify.”
*The estimated Social Security benefit values shown on an individual’s Social Security Statement are based on the assumption that the person’s yearly earnings going forward will be similar to what s/he made the previous year or two. Additionally, the estimated benefits are based on current law. Congress has made changes to the law in the past and can do so in the future.