Don't get caught up in the here and now. Short-term moves and market timing are not sound financial strategies for your serious long-term plan of pursuing financial independence. Good planning does, however, require intermediary decision-making. A few things to consider before year-end:
Charitable Giving – To receive 2020 tax benefits, donations must be made by year-end. Be sure to keep a record of all giving for future tax purposes. Other planning strategies to consider are gifting highly appreciated stocks and bunching charitable donations in the same year.
Tax Harvesting – Look for opportunities to sell stocks that have dropped in value to offset potential capital gains liabilities.
As always, we are available to help you with these year-end decisions and keep you focused on your long-term financial plans. Thank you for entrusting us with your financial life. Let’s all remember to be grateful and enjoy this holiday season.
Before the year’s end, in the midst of the holiday events, travel, and overall busyness, the last thing you want to think about is tackling your finances. But considering how finance-related resolutions are the third most popular New Year’s resolution, why don’t you give yourself a head start on next year’s financial goals by finishing this year strong? Here are ten critical financial actions you’ll be glad you took when the ball drops on New Year’s Eve!
Amp Up Your Retirement Savings
If possible, max out your contributions to your 401(k) by the end of the year to make the most of your retirement savings. For 2018, you can contribute as much as $18,500 (or $24,500 if you are age 50 or older). You might also consider contributing to a Roth IRA. For 2018, you can contribute as much as $5,500 (or $6,500 if you are age 50 or older). Keep in mind that if your income is over $199,000 and you’re married filing jointly, you won’t be eligible to contribute to a Roth IRA.
Use Your Medical And Dental Benefits
Did you have good intentions of taking care of some dental work, blood tests, or other medical procedures? Now’s the time to take advantage of all your healthcare needs before your deductible resets. Dental plans in particular often have a maximum coverage amount. If you haven’t used up the full amount and anticipate any treatments, make an appointment before December 31st.
Verify Expiring Sick And Vacation Time
Depending on your company, your sick or vacation time might expire at the end of the year. Check with your HR department to learn about any expiration dates. If your sick or vacation time does expire, fit in a last-minute vacation, a staycation, or trips to the doctor to use up these benefits.
Use Your Flexible Spending Account
Like your health insurance benefits, you’ll want to use up your FSA (Flexible Spending Account) dollars by the end of the year. Your benefits won’t carry over and you’ll lose any unspent money in your account. Check the restrictions for your account to see what the money can and cannot be used for.
Double-Check RMDs
If you’re retired, review your retirement accounts’ required minimum distributions (RMDs). An RMD is the annual payout savers must take from their retirement accounts, including 401(k)s, SIMPLE IRAs, SEP IRAs, and traditional IRAs, when they turn 70½. If you don’t, you may face the steep penalty of 50% of the distribution you should have taken. To calculate your RMD, use one of the IRS worksheets.
Stay On Top Of Charitable Contributions
If you made a charitable contribution in 2018, you might be able to lower your total tax bill when you file early next year. It can be especially advantageous if you donated appreciated securities to avoid paying taxes on the gains. Along with your other tax documents, find and organize any receipts you have from your donations to charities, whether it was a cash, securities contribution, or another type of gift.
Review Your Insurance Coverages
A lot can happen in a year. As you experience life changes, from the birth of a child to marriage to a new career, it’s important to regularly review your insurance coverages and your designated beneficiaries. Now is the ideal time to review your current insurance policies and make sure they are up to date. You might also want to evaluate your need for other types of insurance you may not currently have, such as long-term care insurance.
Prepare For A Market Correction
We are currently in the longest bull market in history2 and the stock market just keeps hitting record highs3. But we know that what comes up must eventually come down. Prepare yourself and your money by sticking to a long-term strategy, rebalancing your portfolio, and keeping your emotions in check. As long as you are following sound investment principles, only investing long-term money, and keeping your assets within your risk tolerance, you should have no reason to panic when we experience a market downturn.
Talk To Your Kids About Money
The holidays are usually a time for families to get together and reconnect. Use this time intentionally by talking with your kids about money. No matter how old they are, you can give them sound wisdom that will set them up for success. Make sure they understand the importance of saving for retirement and having the proper amount of insurance coverage. Another way to help your kids financially is to create an estate plan to make sure you leave a legacy and avoid passing down a significant tax burden or legal headaches to your kids. If you’ve already taken the time and energy to create an estate plan, you’ll want to check in periodically to ensure all the documents are up to date and no major details have changed.
Give Without Gift Tax Consequences
It’s never too early to start planning for the legacy you want to leave your loved ones without sharing a good portion of it with Uncle Sam. You may want to consider gifting. Each year you can gift up to $14,000 to as many people as you wish without those gifts counting against your lifetime exemption of $5 million. If you’ve yet to gift this year or haven’t reached $14,000, consider gifting to your children or grandchildren by December 31st.
Planning for retirement amid changing market dynamics can be stressful, especially as retirement age approaches. Fortunately, there are a myriad of ways to prepare for it, even if you plan to retire early.
OPTIMIZE YOUR RETIREMENT INCOME
One of our top tips is to optimize your retirement income by setting yourself up with a diversified portfolio that offers a solid return. If you are in your twenties, there is a big opportunity to let compound interest work its magic. If you are in your thirties or forties, compound interest may not be as lucrative for you, but there are still plenty of ways to maximize your returns.
Here are some of the different options available to help plan for retirement:
SEP IRA – a self-employed retirement plan known as the Simplified Employee Pension (SEP) IRA requires employers to contribute 100% of the accounts' funds and provide equal benefits to all eligible employees.
401(k) – An individual retirement plan for which contributions are not tax-deductible, but withdrawals in retirement are tax-free.
Roth IRA – An individual retirement plan for which contributions are not tax-deductible, but withdrawals in retirement are tax-free.
Each option has its differences, so it is important to work with an advisor to identify which is best suited to your situation and your goals. There’s a lot that can go into your Life Plan and we are here to help.
Senior couple enjoying happy retirement lifestyle
DEVELOP A BUDGET AND SAVINGS PLAN
Budgeting can make a world of difference. If you haven’t already, establish an emergency fund. This will give you peace of mind and will help pay for any unexpected expenses that may arise. Once you’ve set that money aside, you can plan your monthly expenses, retirement contributions and more with the rest of the income you have.
As you develop this budget and savings plan to get you to your retirement goals, ask yourself the following questions:
What quality of life do I want to experience in retirement?
What medical expenses do I anticipate?
Do I plan on working during retirement?
Will I have a flow of income during retirement?
These are all important considerations and will help you develop an actionable plan to achieve the retirement lifestyle you dream of.
DETERMINE YOUR TAX BRACKET AND MINIMIZE YOUR TAXES
In retirement, taxes can eat into your available income, leaving you with less to live on. It's important to remember that taxes don't stop once you're retired. Our financial advisors are here to help guide you take steps throughout your working life to minimize your IRS obligations now and later.
The same basic tax brackets that apply to working taxpayers also apply to retirees. Determining your tax bracket in retirement is just like determining your tax bracket while you’re working – which is determined by your filing status and taxable income (income minus deductions).
Common sources of retirement income that are taxable include:
Distributions from traditional 401(k)s and IRAs
Investment income
A portion of your Social Security benefits (in some situations)
Some pension income
Income from work (full or part time)
INVEST TO ADD ADDITIONAL CASH FLOW IN RETIREMENT
If building wealth is your goal, the stock market or other investment strategies are common options. Investments such as annuities, real estate investment trusts (REITs) and income-producing equities can offer additional retirement income beyond Social Security, a pension, savings and other investments.
DETERMINE THE AMOUNT OF RISK THAT IS APPROPRIATE FOR YOU
It is important to keep in mind that all investments come with risk. If you are young, you can probably tolerate more risk. If you are in your thirties or forties, however, you might benefit from taking a lower risk approach. This is because people in their twenties have more time to correct and mitigate losses. A financial advisor can help you decide if you would like to take a low-risk, slow-and-steady approach, or guide you through a high-risk approach with the potential of yielding higher returns.
PAY OFF YOUR DEBTS
It’s important to pay off credit card debt and student loans as soon as possible. Systematically chipping away at debt now, can have a significant impact on your future debts and purchasing power.
A mortgage can be looked at as both a good debt and a bad debt, depending on your goals. Many people choose to rent a home to avoid being tied to a mortgage, and others use that property as a cash-positive asset. Depending on your goals, it’s important to discuss each of these approaches with a financial advisor so they can help guide you through something that will ultimately benefit you and your family.
MAXIMIZE YOUR SOCIAL SECURITY BENEFITS
Navigating Social Security income can be complicated, but there are several ways to maximize your social security benefits, including:
Work for 35 years or more
Earn as much as you can right up until full retirement age (or past it)
If you can, wait until you are 70 years old to claim – this can increase your benefit by 8% a year beyond your full retirement age
The goal is to maximize the income you will receive from Social Security, but the answer for you will depend on your age, current income, marital status, spouse’s income, and the age disparity between you and your spouse. With all the complexities to Social Security planning, there is no substitute for meeting with a trusted financial advisor so you can best navigate your life in retirement.
CONSIDER ESTABLISHING STREAMS OF PASSIVE INCOME
It's important to remember that there are multiple ways to set yourself up for prosperity during your golden years.
These include:
Investing in real estate
Investing in the stock market
Starting an ecommerce business
Writing books
Earning royalties of any kind
Investing in collectibles
Investing in gold and silver
In short, it's best to invest in as many financial assets as you possibly can in order to establish streams of passive income so that you are not solely reliant on one source for your earnings and returns.
ESTABLISH MULTIPLE STREAMS OF INCOME
You may want to consider continuing to work during retirement. This provides many people with a sense of satisfaction and purpose, AND you will be able to keep your benefits.
The earlier you establish multiple sources of income the better. Ideally, at least a few of these would be passive.
You deserve to be comfortable during retirement, and planning for this phase of life right now will likely help you achieve your goals, perhaps even surpass them. You have worked hard for most of your years around the sun, and you deserve to relax and enjoy every moment on your own terms during your golden years.
Why Choose Trilogy Financial
Planning your retirement strategy is important but not something to stress over. If you’ve already started saving, one of our certified financial planners can help you optimize your savings, investing and risk approach so you can live the retirement life you dream. However, if you haven’t started planning for retirement yet, there’s no better day than today!
Our Advisors will work with you to develop a deeper understanding of your alternatives, pinpoint practical needs and make plans for the care you and your family deserve. Please contact us to start your retirement planning today.
