As you reflect on your goals and aspirations for the future, getting your finances in order is likely a top priority.
Whether you’re looking to –
- Bolster savings
- Pay down debt
Or
- Invest more profitably
A sound financial plan is key to putting your best foot forward.
In this article, we’ll explore four key financial planning moves as you prepare to solidify your financial foundation. At Kreitler Financial, we want to provide actionable advice based on where you stand today and where you want to go. With so many conflicting opinions out there on everything from budgeting wisely to navigating the stock market, our goal is to break financial planning down into clear and understandable steps.
It’s never too early (or too late) to take control of your finances and create stability. Through thoughtful reflection and strategy, we can build financial literacy and discipline.
Revisiting Your Tax Picture
With the 2023 tax season over, it is an opportune moment to begin tax planning and preparation. By gathering the necessary documentation and gaining clarity on your income sources, you can minimize any unwelcome surprises during filing time.
You should start by compiling:
- W-2 forms detailing wages earned as an employee
- 1099 forms if you need to report freelance or contract income
- and records of other taxable money infusions
Investments held outside of retirement accounts can also generate dividends or capital gains, triggering a tax bill. Store these in a secure place so you will be ready for your return appointment when the time comes.
What else can you do from a tax perspective?
Although it’s important, we’ve seen a lot of people forgetting – or even worse – ignoring sufficient tax planning, which provides avenues to reduce your liability. For those still working and bringing in earned income, maximizing contributions to workplace 401ks, IRAs, health savings accounts, and flexible spending accounts generates valuable deductions and credits, lowering your taxable amount.
For example, funding a traditional IRA with $7,000 in 2024 and assuming you are over 50 years old qualifies you for the $1,000 catch-up contribution for those approaching retirement age. Doing so could conservatively reduce your tax bill by over $1,500 if invested in deductible contributions. However, this only applies if you fall under the 22% tax bracket.
The math here can seem complicated. While we tried to simplify it as much as possible to give you an understanding of how things work, it’s just the tip of the iceberg. That’s why it’s better to discuss this with an advisor who can give you a clear roadmap.
If you’re a business owner and self-employed taxpayer, you retain flexibility in establishing or augmenting retirement plans, reducing current income subject to taxes. From Simplified Employee Pensions (SEPs) to solo or small employer 401k options, several choices exist depending on your employment structure.
Evaluating Your Investment Portfolio
The turn into 2024 also serves as an opportune moment for investment portfolio check-ins. Markets rarely move smoothly in one direction, meaning previous decisions around asset allocation and holdings made sense at the time of implementation but may require rebalancing after fluctuations.
Has Your Risk Tolerance Shifted?
Significant market drops or surges sometimes impact investor psychology related to risk and loss aversion, especially for those with shorter time horizons to retirement and increased reliance on invested assets.
While stocks continue to outpace bonds and cash for return potential over the long run, everyone experiences risk tolerance differently. If recent volatility has spurred discomfort or sleepless nights, a conversation about adjusting portfolio risk levels is worthwhile, even if no change ultimately results.
Have Recent Returns Skewed Your Desired Allocation?
Occasionally, strong returns within particular asset classes, such as US equity funds that may pay generous capital gains distributions, alter the portfolio balance despite no withdrawals or contributions from you as the investor.
When managing your investments, we recommend you regularly review the balance between different types like stocks, bonds, or cash, especially after significant market shifts. If you receive payouts from your investments, such as stock dividends, consider reinvesting them according to your portfolio’s long-term strategy.
Keep in mind – a strong (or weak) stock market performance could alter your original investment allocation.
For example, if your initial setup was 60% in stocks and 40% in bonds, and a market upturn shifts this to 70% in stocks, it’s time to review your portfolio asset allocation. You might consider selling some stocks and buying bonds to realign with your initial strategy. This advice is akin to adjusting your sails during market downturns (otherwise known as tax loss harvesting) to minimize taxes on investment gains. By doing so, you adhere to your planned investment path and mitigate risks amidst market fluctuations, ensuring your financial goals remain on track.
Inspecting Your Insurance Coverages
The insurance market continues to evolve, with new carriers and policies emerging regularly. As such, an annual review helps ensure your coverage keeps pace with changes. Three key considerations to keep in mind here are – health insurance, life & disability insurance, and Medicare.
Health Insurance
Plan renewals and network shifts mean previously sufficient benefits and provider access can fall short for future needs without constant confirmation. Begin verifying deductibles, co-pays, prescription plans, and covered medical services through your insurer’s portal or by speaking with their representatives directly.
Catching gaps now in
- Care
- Rising deductibles
- And network losses
can prevent headaches later.
Always collect written documentation about what gets included or excluded under revised health insurance agreements.
Life & Disability Insurance
Major life events like new family members, home purchases, or changes in income warrant revisiting life insurance to replace any unexpectedly lost income. Compare the coverage you currently carry against any evolving responsibilities needing protection.
Likewise, gaps may emerge within disability insurance or long-term care plans meant to cover costs associated with the inability to work or manage daily self-care activities in the long term.
Medicare & Retirement Healthcare
Those approaching age 65 should be aware of the enrollment deadlines for Medicare as the late fee penalties for missing certain windows can prove financially detrimental without supplemental retiree health coverage.
Enrollment in Medicare Part A, which provides hospital coverage, generally incurs no charges for individuals or their spouses who have paid into the system through payroll taxes during their working years. On the other hand, Medicare Part B, which covers outpatient and preventive services, and Part D, which pertains to prescription drugs, require monthly premiums. These premiums can be more intricate to manage, particularly if assistance with healthcare costs is a critical factor in your retirement planning.
Assessing Changes to Cash Flow
As we look further into 2024, it’s crucial to revisit your financial plans, especially with the changing economy. Inflation can shift your cost of living, so a cash flow check-up is a smart move. For those age 73 and over, there’s a key rule to know: the IRS requires everyone to start taking out a minimum amount each year from retirement funds like 401(k)s and traditional IRAs. If you don’t, you could face hefty penalties—up to half of what you should have taken out.
The amount of these required withdrawals, which the IRS calls Required Minimum Distributions or RMDs, can vary each year. They’re calculated based on the total in your retirement accounts and your life expectancy. Knowing how much you need to withdraw can help you plan for any tax impact since these withdrawals count as income.
It’s also wise to adjust our household budgets to reflect inflation’s impact—this helps us see if we need to trim any spending. By planning for these changes now, you can make informed decisions and use savings and income effectively as costs rise. Being proactive means we can stay ahead and manage our money confidently rather than scrambling to catch up later.
Help is Always Available
When you look at something with a fresh perspective, it can bring optimism and motivation to better our situations. Harness that momentum now, not later, by reviewing key aspects of your financial framework – tax planning, investments, insurance, healthcare, and cash flow.
Small, forward-thinking actions today compound over time. It’s much easier to get on the right path from the start than to correct course later down the line. Don’t leave changes to the final hour.
Questions on anything we covered? Interested in a personalized consultation identifying priorities for you in 2024 and beyond?
Guiding clients to lifelong financial well-being through ever-evolving conditions is our passion. Let’s have an open conversation about where you stand and where you aim to be and develop an adaptive roadmap to get you there. A fresh perspective can bring new possibilities within reach.
