Revisiting Goals Yearly

Your plan, written with care in January, will be challenged by reality. Markets underperform. A child is born. You get a raise (or a pay cut). You discover you want to retire at 55, not 60. A parent needs financial help. A home needs emergency repairs.

An IPS that you write once and never review is not a plan; it's a relic. A living plan evolves. The annual review is where you check whether reality has caught up to your assumptions, celebrate progress, identify problems early, and adjust before small deviations become large ones.

Key takeaways

• An annual review is not optional; it keeps your plan aligned with your life
• Use a standard review template to ensure consistency year to year
• Compare actual performance to projected performance
• Stress-test assumptions: are required returns still realistic?
• Small adjustments in December prevent large problems in December of the following year
• Celebrate progress; it is motivating and worth acknowledgment

When to conduct your annual review

Pick a consistent date. Many people choose December or January—the natural bookend of the calendar year. Some choose their birthday. Some choose the month they started their first investment account. The specific date matters less than consistency.

Block two hours on your calendar. This is not a task to squeeze in between other demands. Treat it as seriously as an appointment with a financial advisor (it is; you're advising yourself).

Gather your documents:

• Previous year's IPS or financial plan
• Year-end portfolio statements
• Monthly contribution records
• Tax documents (1099 forms, etc.)
• Life event notes (job changes, births, health events, inheritances)
• Spending records or tax return (to estimate inflation and changed circumstances)

Review template: The annual checkup

1. Portfolio balance and progress

Question: How much have you accumulated? Are you on pace?

Action:

• Note your portfolio balance on 31 December of the current year.
• Compare to the balance one year ago.
• Note the absolute gain (or loss).
• Calculate your required balance at this point in your plan. Are you above or below?

Example:

Goal: $1.8M by age 58 (22 years from now)
Years elapsed: 1
Years remaining: 21

Starting balance (1 Jan 2024): $150,000
Ending balance (31 Dec 2024): $186,000
Gain: $36,000 (includes $36,000 contributions + $0 market gain)

Expected balance at 31 Dec 2024 (at 6.5% return):
= 150,000 × 1.065 + 36,000 = $196,000

Actual vs. expected: $186,000 vs. $196,000 (slightly behind)

Interpretation: Markets underperformed slightly, or contributions 
were lower than planned. Not a problem; we're still on pace overall.

2. Contribution compliance

Question: Did you stick to your contribution schedule?

Action:

• Sum monthly contributions for the year.
• Compare to your planned annual contribution.
• Calculate your contribution percentage of income (total invested ÷ gross income).

Example:

Planned annual contribution: $36,000 ($3,000/month)
Actual annual contribution: $33,600 ($2,800/month average)
Difference: $2,400 shortfall (7% below target)

Reason: Two months had lower-than-planned contributions due to 
car repairs and a child's medical expense.

Plan: Increase January contribution to $3,200 to catch up, or 
accept that some months will be below plan. This is normal.

If shortfalls are repeated, ask: Are your target contributions unrealistic? Or are unexpected expenses preventing you from saving? If the latter, review your emergency fund—you may need a larger buffer.

3. Asset allocation drift

Question: Is your allocation still aligned with your target?

Action:

• Calculate the percentage allocation to each asset class (stocks, bonds, international, etc.)
• Compare to your target allocation
• Note which positions have drifted most

Example:

Target allocation: 60% stocks / 40% bonds
31 December 2024 actual: 64% stocks / 36% bonds
Drift: +4% stocks, -4% bonds

Interpretation: Stock market gains pushed equities above target. 
Time to rebalance by selling stocks and buying bonds.

This review identifies whether you need to rebalance in the coming year. If drift is small (within 5%), continue. If drift is large, rebalance in January.

4. Return analysis

Question: Did your portfolio earn the expected return?

Action:

• Calculate your actual return (gain ÷ opening balance, adjusted for contributions).
• Compare to expected return (6.5%, or whatever your target is).
• If returns were lower, ask whether this is a one-year blip or a sign of permanent underperformance.

Example:

Opening balance: $150,000
Contributions: $36,000
Ending balance: $186,000

Gain: $186,000 - $150,000 - $36,000 = $0
Return: 0% (flat year)

Expected return: 6.5%
Shortfall: -6.5%

Interpretation: 2024 was a difficult year (or your allocation was 
too conservative, or fees were high). This is a single-year result, 
not a trend. Continue the plan.

If returns lag expectations for 3+ consecutive years, revisit asset allocation. Perhaps your bonds are in a low-yield environment and your total return has permanently declined.

5. Spending and inflation

Question: Have your spending or life circumstances changed?

Action:

• Review your actual spending for the year (from tax return or spending tracker).
• Compare to your budgeted spending.
• Calculate inflation year-over-year.
• Reassess your retirement spending assumption.

Example:

Budgeted annual spending: $80,000
Actual annual spending: $83,000 (including unexpected car repair)
Difference: +$3,000 (+3.75%)

Inflation (CPI): 2.4%
True increase (above inflation): 1.4%

Retirement spending assumption (from planning): $75,000/year
Updated estimate (adding 3% inflation, 1% lifestyle creep): $78,100

Impact on FI target: 
$78,100 × 25 = $1,952,500 (vs. original $1.8M)
Increase needed: $152,500 (8.5% higher target)

This updated assumption might affect your timeline. If required returns have also declined (due to higher valuations), you may need to work longer or save more.

6. Goal progress toward secondary targets

Question: How are your non-retirement goals progressing?

Action:

• List secondary goals (house down payment, education, sabbatical, etc.)
• Track progress toward each
• Assess whether timelines are still realistic

Example:

Goal: $250,000 house down payment by June 2027 (2.5 years away)
Current balance: $45,000
Monthly contribution: $800
Expected return: 3% (bonds)

Projected balance at June 2027:
= 45,000 × (1.03)^2.5 + 800 × 30 months
= $48,500 + $24,000
= $72,500

Gap: $250,000 - $72,500 = $177,500 shortfall

Options:
1. Delay house purchase to 2029 (4.5 years) → reachable
2. Reduce down payment to $100,000 (accept 20% loan-to-value) → reachable now
3. Increase monthly contributions to $2,300 → may not be feasible

Action: Adjust timeline to 2029 or explore option 2.

7. Required return reality check

Question: Are your return assumptions still realistic?

Action:

• Recalculate the required annual return for your updated goal and timeline.
• Compare to the realistic expected return for your asset allocation.
• If required exceeds realistic, identify the gap and plan to close it.

Example:

Updated goal: $1.95M by age 58 (21 years remaining)
Current balance: $186,000
Required annual contribution: $3,400/month

Required return to hit goal:
Using PMT solver: 6.8% annually

Expected return (60/40 portfolio): 6.5% annually

Gap: 0.3%

Action: The gap is small and within normal variation. Continue the plan.
If the gap had been 2%+, we would need to increase contributions 
or adjust the goal.

8. Life event assessment

Question: Have major life circumstances changed?

Action:

• List any significant changes: job, income, health, family size, location, interests
• For each, assess impact on the financial plan

Example:

Life event 1: Promotion and 15% raise (now earn $172,500 gross)
Impact: Can increase contributions from $3,000 to $3,500/month
Action: Update contribution plan

Life event 2: Birth of second child; daycare costs added
Impact: Gross income up, but expenses up; net disposable income unchanged
Action: No change to plan; acknowledge the new expense

Life event 3: Parent diagnosed with chronic illness; may need care support
Impact: Possible added expense or need to reduce contributions
Action: Monitor situation; may adjust plan in 6 months if needed

9. IPS update or reaffirmation

Question: Does your written IPS still reflect your goals and commitments?

Action:

• Re-read your written IPS from last year.
• Ask: Does this still feel true?
• Make any updates (new goals, adjusted timeline, changed risk tolerance).
• Sign and date the updated version.

Example:

Last year's IPS (Jan 2024) stated:
- Retire at age 58
- 60/40 portfolio
- $3,000/month contributions
- No withdrawal before age 58

After review (Jan 2025):
- Retire at age 58 still feels right ✓
- 60/40 allocation is working well ✓
- Increase contributions to $3,500/month (due to raise) ✓
- No withdrawals planned ✓
- New secondary goal: sabbatical at age 55 (6 months, cost $40,000)

Updated IPS signed: Jan 2025
Review date: Jan 2026

10. Celebrate progress and adjust mindset

Question: Are you on track? Have you made progress?

Action:

• Quantify progress: you've accumulated X amount toward a Y amount goal.
• Calculate the percentage complete: you are Z% of the way there.
• Celebrate. You've done the work.
• Then reset your commitment for the coming year.

Example:

Goal: $1.8M for retirement
Current: $186,000
Progress: 10.3% complete

In one year, we've saved $36,000 and earned $0 from markets 
(flat year), and we're 10% of the way to our goal. At this pace 
(roughly 2% progress per year), we'll reach our goal in approximately 
20–21 years, on schedule.

Celebrate: We've stuck to the plan despite a down market. We're 
making progress. 

Reset: In 2025, we'll continue contributions, rebalance, and 
reassess in December 2025.

What to adjust during an annual review

Adjust these (with proper thought):

• Contribution amount (if income changes)
• Asset allocation (if risk tolerance or timeline has shifted)
• Goal timeline (if circumstances have changed)
• Target amount (if spending patterns have changed)
• Rebalancing frequency (if drift is consistently larger or smaller than expected)

Do not adjust these (without serious reason):

• Asset allocation due to one year's performance (don't FOMO-buy or panic-sell)
• Goals due to a temporary circumstance (job loss means pause, not cancel)
• Entire strategy due to reading one article or hearing one pundit
• Return assumptions due to a single year of results (use 3+ year averages)

Red flags that prompt immediate action

Some findings warrant action before the next annual review:

• Required return is now unrealistic: If your math now demands 10% returns and your portfolio can only deliver 6%, your plan has broken. Increase contributions, extend timeline, or lower goal before the year ends.
• Job loss or major income reduction: Update your IPS immediately. Reduce contributions, adjust timeline, and use emergency fund if needed.
• Inheritance or windfall: Invest according to your allocation plan. Don't suddenly shift to a different strategy.
• Life expectancy changes: A health diagnosis that shortens life or extends it should alter timelines.
• Persistent underperformance (3+ years below target): Revisit asset allocation or fees; don't simply hope things improve.

The annual review as accountability

Many people avoid reviewing their finances because they fear what they'll find. But the review is an act of accountability and self-care, not judgment. It's a conversation with yourself: Am I on track? What's working? What needs adjustment? What have I learned?

Done annually, these reviews prevent small problems from becoming large ones. Done sporadically or not at all, they allow drift to compound until correction is painful.

Template

Related concepts

• Financial Independence Goal
• Writing the Investment Policy Statement
• When Goals Conflict

Next

Your annual review usually confirms that the plan is sound. But sometimes it reveals conflicts: you want to retire at 55 and save for college and buy a house, and the math says you can't do all three. The next article addresses how to identify and resolve competing goals.