As we start the year 2022, now is a great time to either start or revisit a strategy about your financial planning. This does not have to be a highly complex plan but a plan nonetheless. Let’s start with some basics and work our way up to a nice plan that you can structure on your own. Of course, working with a financial professional should always be considered as they should have the experience to not just guide you in the right direction, but to kindly challenge some of your thoughts and ideas towards your saving and investment goals.
Set New Goals and Make a Plan
- Resolutions rarely last. Rather than setting lofty self-promises you might not reach, instead set realistic financial goals for yourself. Once you set an annual goal, break it down to a dollar amount per paycheck.
- Simply stating you want to save more or spend less isn’t specific enough.
- Make your financial goals specific and measurable, set deadlines, track your progress, and hold yourself accountable.
- If making a budget or saving for retirement feels overwhelming, ask for help! Sit down with a financial professional to review your goals.
Rebalance Your Portfolio
- As 2021 ended, the S&P 500 was up over 25% and since January of 2019, stocks were up over 77%! If you haven’t rebalanced, chances are your investments could be overweight, meaning you could be taking on more risk than you might be comfortable with.
- Your investments should be diversified and have appropriate risk for your age. Theoretically, the younger you are, the more risk you can take when saving for retirement. As you get closer to retirement, your risk level should come down. (Source: Forbes) (https://www.forbes.com/sites/kristinmckenna/2021/12/01/heres-why-it-might-be-a-good-time-to-rebalance-your-portfolio/?sh=ad36fcb49bfe, n.d.)
- If your account balance is down because of decisions you made during market volatility, now might be a great time to convert a traditional IRA or 401(k) to a Roth IRA.
- You will pay taxes on the money you convert, but you can withdraw your money tax-free in retirement. There are two rules: you must be over 59 ½ years of age and the Roth IRA must have been in place for 5 tax years. If you open a Roth IRA prior to the tax filing deadline of April 15, 2022, and designate that deposit for 2021, assuming you qualify to do that, your actual start date for that Roth account goes back to January 1, 2021!
- A financial professional can work with you to rebalance your portfolio and hold you accountable to your plan when your emotions take over.
Maximize Your Retirement Savings
- The hardships of COVID-19 have left a lasting impression on how people view their finances. A recent study found Americans are 15 times more likely to build their emergency funds and savings due to the pandemic. (Source: Yahoo!) (https://news.yahoo.com/americans-are-saving-more-because-emergencies-are-on-the-brain-175808179.html, n.d.)
- Making contributions to your retirement fund every month is a good start, however, the real key to building wealth is maxing out your accounts - or at least coming as close as you can.
- You can contribute up to $20,500 in your 401(k) in 2022 (up from $19,500 in 2021) and up to $6,000 in your IRA. Those 50 and older can add an extra $6,500 to their 401(k) and an additional $1,000 to an IRA. (Source: IRS) (https://www.irs.gov/newsroom/401k-contribution-limit-increases-to-19500-for-2020-catch-up-limit-rises-to-6500, n.d.)
- The contributions you make to your pre-tax 401(k) account reduce your taxable income for the year.
- By increasing your contributions, you will be taking home less money, but you will be paying less in taxes and saving more for your future! Actually, saving pre-tax money MAY NOT be the best idea for your personal circumstance, so please meet with a professional advisor that has a tax-focus relative to your investment plan.
Plan for Taxes
- Tax planning is a year-round process and is necessary if you want to hold onto more of your nest egg. You can learn more about these and other planning strategies on our website, masseyandassociates.com.
- Many tax saving ideas are specific to the calendar year, January 1st to December 31st. However, Traditional and Roth IRA contributions can be made prior to the tax filing deadline of April 15th, for the prior tax year. Determine if a pre-tax savings strategy is best or if post-tax (Roth contribution) is better. Again, work with a qualified financial advisor that has a tax focus on investment planning.
- Charitable deductions are allowed up to $300 for a single tax filer or $600 for a married couple filing jointly. This is above the line, so, even if you don’t itemize, you are allowed to deduct these charitable contributions.
- Another thought for charitable contributions, is to donate highly appreciated stocks. By doing this, you take the full market value as your deduction, not just the original amount invested. This is likely better than selling the stock, paying the capital gain, then making a cash donation.
At Massey and Associates, Inc., our retirement planning process is precise and thorough. Once we get to know our clients’ goals and current situation, we’re able to create a plan to help them make their dream retirement a reality. Reach out to one of our advisors if you have any questions.
Make this a Successful, Healthy and Happy New Year!
Massey & Associates, Inc is an independent financial services firm that utilizes a variety of investment and insurance products. Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Massey & Associates, Inc are not affiliated companies. 1166315 – 12/21
All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Please remember that converting an employer plan account to a Roth IRA is a taxable event. Increased taxable income from the Roth IRA conversion may have several consequences including (but not limited to) a need for additional tax withholding or estimated tax payments, the loss of certain tax deductions and credits, and higher taxes on Social Security benefits and higher Medicare premiums. Be sure to consult with a qualified tax advisor before making any decisions regarding your IRA. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions.
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