A Financial Protection Plan for the New Year

Everyone needs a financial plan. A financial protection plan. A family protection plan. The trouble is, even the best-laid plans can get derailed, especially given how complex our financial lives can be.

As a new year unfolds, take a moment to consider the importance of risk management and estate planning. What would happen to your family if you passed away suddenly or unexpectedly. Are you on track to retire when you had hoped? Don’t put your financial planning off any longer. Schedule an appointment to talk with a financial advisor today and get something on the calendar. At Align-Wealth Partners, an initial conversation is free and there are no strings attached. Contact us and get the process started. 

Financial Lives Can Be Complex

A lot of times the reason for putting financial planning needs on the backburner is because it can be overwhelming, confusing and complex. However, ironically, this is why a financial protection plan should be created. And the sooner the better. 

Life is full of unforeseen events and detours. Your financial life is like a road trip, and many times, the streets are shut down and you are forced to take a detour. You know where you want to go, but it’s important to continually stop and re-evaluate the best path to get to your destination. 

For instance, many of us have retirement as a major financial goal. But between today and retirement may be a number of other goals and financial hurdles, such as saving for your children’s education or helping pay for long-term care for your aging parents. While some of these financial hurdles are predictable (you know that first tuition bill is coming when your child graduates high school), others can catch you unaware, like a leaky roof. 

The fact that life can be unpredictable only emphasizes the importance of financial planning. Even if you need to re-evaluate your plan on a regular basis – and you should do this regardless of if you’ve encountered a roadblock or not – having a financial plan is still the best way to ensure you do eventually reach your goals. 

Don’t put off your financial planning needs any longer. Contact Align Wealth Partners to see how we can help you put together a comprehensive financial plan today. 

Retirement Planning

Retirement planning is an important aspect of financial planning. While financial planning focuses on providing for your financial needs today and in the future, retirement planning zeroes in on how you’ll generate the income you’ll need in retirement. Given that retirement is a major financial goal for most people, a solid retirement plan is a critical part of any good financial plan.

Like financial planning, it’s never too early to start retirement planning. Your retirement plan can help you determine how much to save and where to save it during your accumulation years. The answer to these questions may change as your financial situation changes. For example, as your income and tax bracket changes, you may find the benefits of saving in a Roth or after-tax retirement account versus a pre-tax retirement account shift.

As you near retirement, your plan will help you adjust your investments to become more conservative. Young savers who are still a decade or more out from retirement can often use a more aggressive, growth-oriented investing style to maximize the growth of their investments. But when you get close to the day you want to start using your investments for income, most people need to switch from growth-mode to protection-mode to protect the growth they’ve obtained.

Your retirement plan should include figuring out how you’ll turn those hard-won savings into an income stream when you retire. It’s not just your guide to reaching retirement, but also your guide into and through retirement.

Sustaining Your Lifestyle After Retirement  

Sustaining your lifestyle after retirement is the crux of retirement planning. Many retirees will spend 30 or more years in retirement. Turning an investment portfolio into a stream of income that can last you through retirement is no easy task. The ultimate goal is to provide enough income for you to live comfortably in retirement, but how you manage this can be a juggling act.

The key to sustaining your lifestyle in retirement is having the resources and flexibility to adjust to changing economic environments. For instance, many retirees use a yield or income investing strategy in retirement. This involves choosing investments that provide a regular dividend or interest payment so they can live off of that income in retirement. This can be a good strategy when rates are high, but in a low-interest rate environment, it can be hard to find the yield necessary to sustain your lifestyle in retirement. Discussing your options with a financial advisor you trust can be the difference between reaching retirement success or becoming a retirement horror story. 

Taxes 

In your accumulation years, one way to reduce your taxable income is by saving money in pre-tax retirement accounts. Money contributed to a 401(k), for example, passes straight from your paycheck into your retirement account without getting taxed. You can also take a deduction for any contributions you make to a Traditional IRA, up to the annual limits. Maximizing your contributions to both of these accounts could reduce your taxable income.

You can also reduce your taxable income by using a Health Savings Account (HSA). If you have access to an HSA, these accounts can be a great way to use pre-tax money for medical expenses. You can then use the money tax-free to pay for healthcare-related costs. After age 65, you can even use the funds for non-healthcare expenses but will just have to pay ordinary income taxes on any such withdrawals.

Once you’re in retirement, reducing your tax load can become a bit more complicated. Tax loss harvesting (available to investors of any age) lets you use investment losses to offset up to $3,000 in non-investment income. This strategy is particularly beneficial in years when you expect to have higher income and don’t want to be forced into a higher tax bracket.

You can also reduce your tax load by increasing your deductions. Some itemized deductions you can take include:

• Business expenses if you run your own business
• Medical and dental expenses that are more than 10 percent of your taxable Adjusted Gross Income
• Up to $250,000 ($500,000 if married and filing jointly) of profit in the sale of your home, provided you’ve lived in it for at least two of the previous five years
• Property taxes and personal property taxes such as your car registration
• Charitable contributions up to 60 percent of your Adjusted Gross Income 

Despite all the itemized deductions available, the standard deduction may still be a better choice, especially if you’re 65 years old or older. Starting the year you turn 65, you become eligible for a higher standard deduction. If you file jointly, both you and your spouse must be over 65 to take advantage of the higher deduction.

Discuss your situation with a Certified Financial Planner (CFP) and understand your options. It’s never too soon to put a financial protection plan – a family protection plan – in place, but it can be too late! Make 2020 the year you take control of your future and your finances.