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RMDs: The 3-Year Statute of Limitations
News, Retirement PlanningIf you’re approaching retirement, you might be familiar with Required Minimum Distributions (RMDs). However, the rules surrounding RMDs are changing, and without proper planning, you could risk IRS-enforced collections. Here’s what you need to know.
The SECURE 2.0 Act of 2022, enacted Dec. 29, includes almost 100 new retirement plan provisions, many of which aren’t effective yet. But some big changes involving required minimum distributions and related penalty relief are already in effect
Before we delve into the 3-year statute of limitations, let’s briefly recap what RMDs are and why they matter.
What are RMDs?
A required minimum distribution (RMD) is the amount of money that must be withdrawn from employer-sponsored retirement plans by owners and qualified retirement plan participants of retirement age.
In 2023, the age at which you must begin taking RMDs changed to 73 years. Account holders must, therefore, start withdrawing from a retirement account by April 1, following the year they reach age 73. The exact age may vary depending on your retirement plan and when you were born.
The IRS uses a specific formula to calculate your RMD, considering your account balance and factors related to life expectancy. In 2023, the RMD table is based on the IRS’s widely-used Uniform Lifetime Table. It’s worth noting that the IRS has additional tables for account holders and beneficiaries whose spouses are considerably younger.
SECURE 2.0 Shakes Things Up for RMDs
The Securing a Strong Retirement Act of 2022, known as SECURE 2.0 Act, made some changes to the rules about when and how people need to take out money from their retirement plans to avoid being hit with extra taxes.
These changes were designed to make things easier for retirees by giving them more time to file, removing certain requirements, and lowering penalties if they make a mistake. Some of these updates are already in place, and others will start in the coming years, with the last ones kicking in by 2033. The main changes to RMDs include:
1. Changes to the Participant’s RMD Age (Effective in 2023)
Under the SECURE Act of 2019, the RMD age for a terminated participant increased from 70½ to 72 effective in 2020. SECURE 2.0 again changes the RMD age to 73 in 2023, and ultimately to age 75. The chart below highlights the changes to the RMD age at relevant points in time.
2. No RMDs Required from Roth Accounts (Effective in 2024)
For 2024 and later years, RMDs are no longer required from designated Roth accounts. You must still take RMDs from designated Roth accounts for 2023, including those with a required beginning date of April 1, 2024. You can withdraw more than the minimum required amount.
3. Removing RMD Barriers to Life Annuities
The rules for Required Minimum Distributions are designed to prevent individuals from deferring taxes for too long, and one way they achieve this is by limiting annuity contracts from providing small initial payments that grow excessively over time. However, in practice, these rules can sometimes restrict even minor increases in benefits. But now, Congress is working to make annuity contracts in defined contribution plans more appealing.
Section 201 of the Act allows commercial annuities purchased under 401(k) and other defined contribution plans, as well as IRAs, to offer the following:
4. Reduction in Excise Tax for RMD Errors
Despite regularly appearing on the list of priorities for tax-exempt and government entities’ compliance, it’s not unusual for people to make mistakes when it comes to Required Minimum Distributions (RMDs).
Up to now, one of the largest penalties in the Tax Code was the 50% penalty for not taking an RMD. It was based on the RMD amount that should have been taken but wasn’t.
SECURE 2.0 lowers this penalty to 25%, and then to 10% if the missed RMD is timely made up.
What is the Statue of Limitations?
The statute of limitations is the time limit for the IRS to file charges or collect back taxes. In general, a statute of limitations is a law (statute) that limits how far back you can go when assessing a penalty, charging someone with a crime, or taking other actions. There are different statutes of limitations for different types of tax issues.
RMDs and the 3-Year Statute of Limitations
There is now a three-year statute of limitations associated with the failure to take a required minimum distribution (RMD) from a retirement account. Overlooked when the SECURE Act 2.0 was enacted was Section 313 of the Act, which added a 3-year statute of limitation for the failure to take an RMD. If an RMD is missed, the 25% penalty is only applicable for the next three years. So what happens after those three years have passed?
The statutes of limitations not only limits the IRS in assessing additional tax on returns filed, but it also limits the amount of time you have to claim a refund or credit due. If the three-year deadline for filing has passed, the IRS, by law, cannot issue your refund.
IRS Form 5329 is a tax form used for reporting retirement plan penalties and requesting a waiver of the RMD penalty. As mentioned above, in the past, not filling out this form for penalty relief meant that the three-year statute of limitations wouldn’t start, resulting in a hefty 50% excise tax. However, thanks to the SECURE 2.0 Act, this tax has been reduced to 25%, and it could drop to 10% if you take action to withdraw the missed RMD within two years.
To solve this problem, the SECURE 2.0 Act introduced a statute of limitations tied to when individual files their federal income tax return, Form 1040. If no federal income tax return is required, the statute period begins on what would have been the tax filing deadline. This new statute of limitations covers missed RMDs for three years and excess IRA contributions for six years but doesn’t apply to early distributions.
Form 5329 left the statute of limitations open indefinitely, allowing penalties and interest to accumulate unnoticed. A positive outcome happened once Congress addressed the issue. However, even with these changes, there are still exceptions retirees should make note of.
Exceptions to the Rule
While the 3-year statute of limitations relieves many retirees, it’s essential to be aware of exceptions. Not all missed RMDs qualify for this extended correction period. Here are some important exceptions:
Working With a Fiduciary Advisor
It’s important to understand how the recent law changes affect your IRA. One of the more relevant topics IRA owners should be aware of is a Required Minimum Distribution (RMD). Partnering with a trusted Fiduciary Advisor can play a crucial role in helping you manage your RMDs effectively so you meet your legal obligations while optimizing your financial situation. They can also offer tailored guidance to help maximize your retirement savings while following IRS rules.
You don’t have to battle the confusing regulations for certain required minimum distributions alone. From advice on understanding your specific RMD obligations, to helping you explore tax-efficient ways to manage your RMDs, Agemy Financial Strategies works alongside you to assess your retirement income needs and create a plan for your unique needs and goals.
Final Thoughts
This 3-year statute of limitations provision is yet one more reason why we anxiously await proposed Regulations from the IRS with respect to how the SECURE Act 2.0 will be interpreted. There are several other provisions in the Act that need a lot of clarification. A solid understanding of Required Minimum Distributions is essential for anyone with tax-advantaged retirement accounts. Failing to comply with RMD rules can result in costly penalties, potentially derailing your retirement plans.
By staying informed about when RMDs apply, how they’re calculated, and your options for managing them, you can confidently navigate this aspect of retirement planning. If you’re ready to take the first step to achieving your retirement goals, our team is here to assist you. The better you comprehend your financial strategy, the more effectively you can manage your finances.
For a detailed list of our service offerings, see here.
Set up your complimentary retirement strategy session today.
Disclaimer: This content is for educational purposes only and should not be considered financial or investment advice. Please consult with the fiduciary advisors at Agemy Financial Strategies before making any investment decisions.
Tips to Help You Conquer The Retirement Mountain this Financial Planning Month
Financial Planning, NewsBreaking a leg, needing heart surgery, or suffering from chronic illnesses like diabetes and arthritis: What hurts the most as you age? While all of these medical incidents include extreme suffering, the biggest pain you could face in retirement is covering healthcare costs.
Planning for healthcare in retirement can be daunting, as it often comes with substantial costs that need careful consideration.
Health insurance premiums typically account for most retirees’ yearly healthcare expenses, making up around 70% to 81%. While most premiums can be managed using your monthly retirement income and federal healthcare programs, not being ready for unexpected out-of-pocket expenses can derail your retirement.
To navigate this complex landscape, you need the right strategy in place. Here’s how you can secure a financially stable and healthy retirement.
Assess Your Current Health and Healthcare Needs
The percentage of people in the United States who are 65 years and older has increased noticeably in recent years. And it’s expected to reach 20% of the US population by 2030. Because folks 65 and older typically spend more on healthcare than any other age group, this increase in older Americans will likely increase healthcare costs in the long run.
Assessing your current health and healthcare needs is a crucial initial step when planning for predicted costs in retirement. This process involves taking stock of your current well-being, as well as anticipating potential health issues in the future:
By thoroughly assessing your past, present, and potential future health and healthcare needs, you’ll be better prepared to make informed decisions about your retirement healthcare budget. This process can also help you explore options for health insurance, long-term care insurance, and other financial strategies to ensure you have adequate resources to cover your healthcare expenses in retirement.
It’s essential to periodically revisit and adjust your healthcare plan as your circumstances change.
Understanding Medicare Coverage
Medicare is a federal health insurance program designed for those aged 65 and older, along with some younger individuals with disabilities. This coverage ranks as the second-largest program in the federal budget. After accounting for offsetting receipts in 2022, its expenditures reached $747 billion, 12 percent of the total federal spending.
As of March 2023, The Centers for Medicare & Medicaid Services (CMS) released the latest enrollment figures. As of March 2023, a noteworthy 65,748,297 individuals have become beneficiaries of Medicare. This number underlines how significant this coverage is, with nearly 100,000 more people enrolling since the previous report in September.
Medicare comprises four distinct parts, labeled A, B, C, and D, each addressing specific aspects of healthcare. Let’s look deeper at the different parts of Medicare to understand what it covers.
While Medicare provides substantial coverage, it’s important to know that it doesn’t cover everything. Many retirees opt for supplemental Medigap insurance or Medicare Advantage plans to fill the gaps. But you may need additional coverage beyond these plans.
Exploring Long-Term Care
Effective insurance planning can help preserve your retirement savings while ensuring you’re prepared for this crucial aspect of your healthcare needs. One of the most significant potential healthcare expenses in retirement is long-term care. Someone turning 65 today has almost a 70% chance of needing some type of long-term care services and support in their remaining years.
Planning for this expense is crucial, as Medicare only covers limited long-term care costs under specific conditions. According to a Genworth survey, the median cost for a private room in a nursing home exceeds $100,000 annually, while an in-home health aide could cost $60,000 or more annually.
Some individuals self-fund their long-term care expenses by relying on retirement savings, investments, and other assets. However, this can be risky, as long-term care costs can quickly deplete these resources. Developing a comprehensive retirement plan that accounts for potential long-term care needs is essential.
A long-term care insurance policy helps cover the costs of that care when you have a chronic medical condition, disability or disorder such as Alzheimer’s disease. Most policies will reimburse you for care given in a variety of places, such as:
Your home.
A nursing home.
An assisted living facility.
An adult day care center.
Considering long-term care costs is an important part of any long-range financial plan. But don’t wait: you won’t qualify for long-term care insurance if you have a debilitating condition, and long-term care insurance carriers won’t approve most applicants older than 75. Most people with long-term care insurance buy it in their mid-50s to mid-60s.
By taking a detailed approach to healthcare coverage in your retirement plan, individuals can help ensure they have the resources necessary to pay for the care they may require. Given the complexity of long-term care planning, consulting with a financial advisor can be valuable in developing a personalized strategy that addresses your unique needs and circumstances.
Working With a Financial Advisor
Healthcare costs and your health needs can change over time. It’s essential to regularly review and update your retirement healthcare plan to ensure it aligns with your current situation. Working with a Financial Advisor can help you navigate the complex world of healthcare costs and retirement savings strategies.
At Agemy Financial Strategies, our team of Fiduciary Advisors helps individuals navigate the complexities of long-term care planning. We’ll evaluate your current financial and healthcare situation, identify potential risks, and develop a personalized plan to meet your long-term care needs.
By recognizing that healthcare costs can pose a significant threat to your retirement nest egg, we will identify potential risks and costs associated with your health and insurance needs. This includes factors like inflation, potential health changes, and the impact of long-term care expenses on your savings.
Our trusted Financial Advisors will provide you with ongoing support by regularly reviewing your retirement plan and making necessary adjustments so you can enjoy your retirement years without worry.
Final Thoughts
Securing an enjoyable retirement requires careful planning–especially with today’s monumental healthcare expenses. By gaining insights into the healthcare cost landscape, you can proactively prepare yourself for these financial setbacks in your golden years.
If you’re seeking assistance crafting a retirement plan that considers hidden healthcare costs, speak with your dedicated Fiduciary advisors at Agemy Financial Strategies. We can help you decide what insurance plans are the best option for you.
If you’re ready to get started, contact us today and schedule your complimentary strategy session here.
Disclaimer: This content is for educational purposes only and should not be considered financial or investment advice. Please consult with the fiduciary advisors at Agemy Financial Strategies before making any investment decisions.
5 Tips for Building Renewable Wealth in Retirement
News, Retirement Income Planning, Wealth PreservationRenewable energy has garnered widespread popularity across various industries, sparking innovation and sustainability. What if we approach wealth-building with a similar mindset?
Renewable wealth is a concept that involves making mindful financial decisions that serve our best interests – while helping the next generations’ needs. In a society marked by environmental concerns, social responsibility, and economic uncertainty, pursuing wealth has taken on a new dimension. Building renewable wealth is a conscious strategy to encompass ongoing financial prosperity and future peace of mind.
Let’s explore 5 key tips for building renewable wealth and how they interconnect to create a sustainable and purpose-driven approach to financial success. But first…
What is Renewable Wealth?
Renewable wealth is a financial strategy that focuses on leveraging your resources for optimal financial growth. It redefines traditional notions of wealth by highlighting the importance of conscious decision-making in tandem with financial growth. A fitting way to describe/explain this idea is through the chicken and egg analogy:
Consider savings (or income) as the egg and investing (like in stocks) as the chicken. Savings, the eggs, offer a consistent return, much like the sustenance provided by food. When you reinvest those savings, it’s akin to acquiring more chickens, which, in turn, produce more eggs. This cycle consistently repeats: the more chickens (investments) you have, the more eggs (returns) you get. Over time, due to the magic of compounding, this leads to exponential growth in your investments. It’s a balance between steady income (the eggs) and accelerating growth (acquiring more chickens), culminating in sustainable long-term wealth.
So, how do you create the right balance and build a “renewable wealth portfolio”? It all starts with your mindset.
1. Having The Right Mindset
The renewable wealth strategy involves adopting a specific mindset that aligns with ethical and innovative social initiatives. Ultimately, renewable wealth seeks to create a harmonious synergy between financial growth, environmental preservation, and the betterment of society for future generations.
We often think wealth is only about money, but it is more than that. Your positive or negative mindset plays a crucial role in your wealth-building journey. Coined the “Millionaire Mindset,” being wealthy isn’t just about having a lot of money. It’s more about adopting a specific mindset. For its followers, this mindset means shifting how you see the world to reach your dreams and requires consistently adopting purposeful habits and thoughts.
Essentially, wealthy retirees often operate from a mindset of plenty, which boosts their confidence and success. To help you reach your goals, act as if you’ve already achieved them. In that space, your success fuels more success.
2. Maximizing Income
Maximizing income to pursue renewable wealth involves a two-fold approach: seeking financial opportunities and ensuring they align with your goals. The higher your income, the more you can allocate towards savings and investments, accelerating your wealth-building journey.
Moreover, a higher income allows you to comfortably meet your daily needs while setting aside substantial retirement funds. Here are a few tips to help you maximize your income:
When combined with prudent financial planning and strategic investments, maximizing your income is a powerful means to secure a comfortable retirement.
3. Timing the Market
Financial markets are unpredictable, and staying patient when your investments are on the line can be challenging. Take the example of the S&P 500 index: after reaching its lowest point in October 2022, it has managed to recover most of the losses suffered during the bear market. The previous year was marked by a decline of at least 20% from its highest value. By the end of July 2023, the S&P 500 was down by just 4.4% from its peak in January 2022. This recovery showed improvement compared to the notable 25% drop experienced in October 2022.
This lesson shows that if you leave the market too early or a market drop never materializes, you could miss out on significant additional positive returns. By staying invested rather than trying to time it — it could yield better results over the long term.
Staying patient and waiting out volatility is key to building renewable wealth.
4. Preserve Your Legacy
Renewable energy is all about creating a safe and sustainable future for the next generations. In order to create renewable wealth for your loved ones, you need to protect your hard-earned assets to pass down.
Estate planning entails creating various documents, outlining the designating of healthcare proxies, and establishing powers of attorney if you were to pass away. This level of preparation can bring peace of mind to you and your family. Without a clear estate plan, the distribution of assets can lead to conflicts and disputes among family members. Other benefits of having an estate plan include the potential to minimize tax burdens, help secure your family business continuity, and have the power to help ensure your loved ones receive their inheritance.
5. Working With a Financial Advisor
An experienced financial advisor can help you chart a course that aligns with your financial goals and values. As economic conditions, tax laws, and personal circumstances change, you must revisit your retirement strategy and make necessary adjustments. This may involve reevaluating your investment allocations and risk management approach to ensure they align with your evolving needs and financial situation.
Staying informed about market trends and working closely with your financial advisor can provide valuable insights and guidance. At Agemy Financial Strategies, our team of financial advisors is here to walk you through the process of achieving renewable wealth so that your money can work hard for you and you can reap the benefits of a comfortable retirement.
By regularly reviewing and adjusting your plan, you can make informed decisions to help maximize your retirement savings and help ensure financial security for loved ones – and future generations.
Last Thoughts
Building renewable wealth transcends the traditional pursuit of financial success. At Agemy Financial Strategies, we understand that building wealth that survives more than one generation requires more than financial assets.
With the proper planning, you can set up your renewable wealth portfolio to bring financial success for hundreds of years.
Set up your complimentary strategy session here today.
Disclaimer: This content is for educational purposes only and should not be considered financial or investment advice. Please consult with the fiduciary advisors at Agemy Financial Strategies before making any investment decisions.
Biggest Retirement Changes in 2023
NewsBig changes are likely coming for Americans’ retirement savings. From RMD changes to 401(k) financial incentives, here’s what you need to know.
Many retirement savings accounts have slowly dwindled down due to rising inflation. The cost of food, gas and even rent have skyrocketed. Older Americans and those looking to retire soon are left dealing with the aftermath of trying to find a retirement solution to counteract the damages of 2022.
Here is what you need to know about retirement in 2023 and how to make the most of the new changes to your retirement plan.
Retirement Reform
Retirement reforms were passed by Congress in order to help relieve the pressure of rising inflation for retirees. In 2023, retirees must take out RMDs from their tax-advantaged retirement accounts when they turn 73. This is up from 72, and that age will bump up to 75 in 2033.
Legislation also provides a 500 tax credit for small businesses that meet the following criteria:
The new bill includes a host of other changes to the retirement system. Which will go into effect later than 2023.
Key Medicare Changes
Medicare is becoming cheaper for millions of retirees, in 2023.
The monthly premium for Medicare Part B will be $164.90 in 2023, a decrease of 3%, or $5.20 a month, from $170.10 in 2022. The annual deductible for all Medicare Part B beneficiaries will be $226 in 2023, down from the annual deductible of $233 in 2022.
Thanks to provisions in the Inflation Reduction Act, 3.3 million Medicare Part D beneficiaries with diabetes will benefit from a guarantee that copays for insulin will be capped at $35 for a month’s supply. Another huge change in 2023? Vaccines covered under Part D will come with no copays or deductibles. That will ease the cost of pricey vaccinations, such as the shingles vaccine.
Social Security Increase
If you receive Social Security benefits, you might be getting a raise next year.
The Social Security Administration announced that the cost-of-living adjustment (COLA) for 2023 will be 8.7%, the largest since 1981. The COLA increase means that average monthly benefits will go up by more than $140 per month in January, according to the SSA.
This is great news for people who depend on their Social Security checks to pay their bills and make ends meet, especially since the U.S. economy has been growing at a slow pace recently and many retirees are struggling to make ends meet with their current income levels.
Retirement Plan Contributions
The Internal Revenue Service announced the annual contribution limits for 401(k)s, IRAs, and other retirement accounts for 2023. If you have one of these accounts, this is good news!
Workers who have a 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan can contribute up to $22,500 next year—that’s up 9.8% from this year’s limit of $20,500. For those 50 and over, they can save an additional $7,500 in their 401(k), up from last year’s $6,500 catch-up contribution limit. In total, workers who are 50 and older can contribute up to $30,000 starting in 2023.
The annual contribution limit for IRAs next year also increased to $6,500 from $6,000—an increase of 8.3%. Individuals 50 and over can save an additional $1,000 in their IRAs as well—this remains unchanged from last year.
Since the start of the year, Congress has been busy making changes to your retirement options. Here are some of the most important ones:
HSA Changes
Health savings accounts just got a little more generous. The IRS announced that the annual inflation-adjusted limit on HSA contributions for self-only coverage under a high-deductible health plan will be $3,850, up from $3,650 in 2022. The HSA contribution limit for family coverage will be $7,750, up from $7,300.
That’s a 5.5% increase over 2022 contribution limits. A health savings account option is available for people enrolled in a high-deductible health care plan. You can also open an account as a self-employed freelancer or business owner if you have an HDHP.
The IRS sets the parameters for these accounts annually. With a high-deductible plan, you pay a lower premium per month than other types of plans but a higher annual deductible — the amount you pay for covered medical costs before insurance kicks in. Money you don’t use can roll over year after year and can be used for non-qualified expenses after turning 65.
Final Thoughts
While there are a lot of notable changes happening to retirement plans this year, it’s important to have a sound understanding and strategy in place to prepare for 2023.
With this in mind, it’s important to have a financial advisor you can trust. At Agemy Financial Strategies, we specialize in investment strategies and retirement planning. These two go hand in hand when it comes to planning your retirement –present and future!
For over 30 years, Agemy Financial Strategies has helped our clients plan and prepare. This way, when the unforeseen occurs like in 2022, our clients are uniquely positioned for success. We work hard to deliver a dependable retirement income strategy, in any market, so that you can enjoy the “best” of their lives during retirement.
Interested in learning more about retirement planning in 2023? Contact us here today.
Tax Filing Season Tips with Agemy Financial Strategies
NewsIt’s that time of the year… tax season. For the vast majority of Americans who aren’t tax-savvy, dealing with it can be overwhelming. Here’s our top tips to make this year’s tax returns as stress-free as possible.
Tax filing season is here and many don’t know how to file back their taxes. Many tax payers don’t fulfill their tax filing responsibilities in due time because they look at the whole procedure and may find the process daunting. But if you don’t file correctly, it could cost you big bucks and offset your retirement plan.
Tax Changes from Last Year’s Returns
Stimulus Payments: Unlike 2020 and 2021, there were no new stimulus payments for 2022 so taxpayers should not expect to get an additional payment in their 2023 tax refund. Some tax credits return to 2019 levels. This means that taxpayers will likely receive a significantly smaller refund compared with the previous tax year.
Charitable Deductions: This filing season there will be no above-the-line charitable deductions. During COVID, taxpayers were able to take up to a $600 charitable donation tax deduction on their tax returns. However, for tax year 2022, taxpayers who don’t itemize and who take the standard deduction, won’t be able to deduct their charitable contributions.
How Retirement Contributions Impact Your Tax Bill
If you’ve started contributing to a retirement plan, at work or on your own, the next thing you’ll want to know is how to deal with it on your tax return. Fortunately, entering retirement contributions on your tax return, if necessary, is pretty simple.
Generally, you can deduct contributions of up to $6,000 to a traditional IRA ($7,000 if you are age 50 or older by the end of the tax year) on 2021 and 2022 returns.
Other plans have different limits, which vary based on your age and type of plan. They may also be limited based on your income level.
Considerations and Strategies
Tax filing lasts through April 18, three days later than the normal April 15 deadline for filing taxes. April 18 is also the deadline for requesting an extension, which gives taxpayers until Oct. 16 to file their returns for 2022.
If you’re getting ready to file, try adding some of these tips to your tax preparation this season to make filing easier:
Remember to consult your financial advisor to ensure that you are taking advantage of all available tax benefits.
Ready, Set, File
Once you have factored in the above considerations, here’s how to file your 2022 income taxes:
By following these tips, you can help to make the process of filing your 2022 income taxes as smooth and stress-free as possible.
Don’t Forget to Do Your Homework
Give your future self a hand and prepare for next year’s taxes by considering any and all missteps you experienced this year that made filing your taxes more difficult. For example, making an appointment with your financial advisor, keeping better track of important documents, and updating the amount of tax withheld from your paycheck in the upcoming year can make filing next year that much easier.
While paying attention to tax strategies for your retirement income is important, there is no single right strategy. Read up on the updates to the taxes to make sure you’re familiar with them and fully understand what they’ll mean as you file.
Finally, consult with your Fiduciary advisor to make sure you’re not missing out on further tax-strategies that could help boost your retirement savings. From reassessing your investments to postponing RMDs, Agemy Financial Strategies has over 32 years of experience in tax-strategizing to maximize retirement income in your golden years.
Let’s put together your personalized plan with a complimentary strategy session. Set yours up here today.
Financial Goal Setting with Agemy
NewsRetirement planning during a bear market is challenging enough. But the 2023 retirement outlook includes a host of other major threats, such as high inflation and rising interest rates. Here are our top six suggestions when setting financial goals for the year ahead.
Looking back over the past few years, we have learned more than ever how important it is to be financially prepared. Financial preparedness is all about setting goals, but how often are these goals being reached?
When it comes to financial goal setting in 2023, it’s important to reflect your intentions and aspirations so you can achieve your intentions in confidence. Here’s what you need to know about goal setting if you are near retirement.
List and Prioritize Your Financial Goals
One of the best ways to set goals is to list them out and identify each one. Prioritize your goals from most important to least important. Write down specific details about each goal like the timeline and the amount of money you’ll need / how much you have already saved.
It’s easy to think of saving as a one-and-done activity. But you can actually save for more than one goal at a time, especially if those goals are short-term and long-term. For example, you could put money away for a vacation while continuing to contribute to retirement accounts.
Take Care of Financial Basics
Once you have identified your goals, ensure that your basics are covered. Depending on where you are at with your financial planning, you may have already accomplished these steps. Here are a couple financial basics that you can keep in place that will help you build a strong foundation in the long run.
By making sure these are covered, it will help you pursue other goals with confidence.
Tackle Inflation Head-On
Nothing strikes as much fear into the hearts of retirees as inflation, and for good reason. The best-laid retirement plans can be wrecked by the rapid decline in value of the dollars you’ve socked away in your golden years. But inflation isn’t always the big bad wolf it is portrayed to be.
According to analysis performed by the U.S. Bank Asset Management Group, stocks have held up well against inflation over the last 30 years. And while you may think of inflation simply meaning higher prices on everyday goods, for investors, it means moving some of their money to assets that benefit from inflation or at least keep up with its pace.
The following investments tend to fare well during periods of inflation:
Retired Americans should worry more about local property tax rates or the rising cost of health care. It’s really important not to let the emotional part of the inflation situation dictate your retirement planning strategy.
Understand Sequence of Returns Risk
You face plenty of risks when investing for retirement. Markets crash, inflation can eat into your returns, you might even worry about outliving your savings. But there’s one big retirement risk that gets very little attention: Sequence of returns risk.
Sequence-of-returns risk, or sequence risk, is the risk that an investor will experience negative portfolio returns very late in their working lives and/or early in retirement. Sequence-of-returns risk is a significant threat because retirees have little time to make up for losses that are compounded by the simultaneous drawdown of income distributions.
Protecting against sequence risk means anticipating a worst-case scenario. Don’t assume that a bull market will reign throughout your golden years.
Create a Financial Plan to Each Your Financial Goals
Now that you have your goals and motivations, it’s time to start mapping out how they all fit together in a financial plan.
The good news is you don’t have to do this alone! You can either do the work yourself or get help from a financial professional. Either way, it’s important to understand how you’re positioned to achieve your goals.
To get started, take inventory of what you have and consider what you need. Document your income sources and expenses. Knowing how much money you can allocate to different goals each month gives you clear direction on how to move forward. Then, use your goals and their timelines as drivers for your financial plan.
Perhaps you count yourself among the self-sufficient crowd who never sought professional assistance during your working years. Maybe you’ve done just fine that way. But now that you have to deal with retirement math and estate planning, it’s maybe time to lean on the experience of others. That’s where the Fiduciary advisors at Agemy Financial Strategies can help.
We can help you understand your current financial reality, and where you would ideally want to be, based on your current age and financial goals. Not sure what your goals are? We can help you with those as well. Furthermore, we can provide great insights on how to structure your finances so that you’re better able to meet your goals.
Final Thoughts
Once you learn how to identify financial goals and have a plan in place, it will slowly evolve over time. Life is a constant ebb and flow and many factors can affect your financial goals. As long as you review your goals and achievements once a year with your trusted advisor, you can review and make changes where necessary.
At Agemy Financial Strategies, we sit down with you and take the time to reflect on the purpose behind your financial goals. We will help craft a financial plan that works for you.
Looking to get your financial plan for 2023 started? Contact us to set up your complimentary consultation today.