5 Tips for Year-end Financial Planning

As we move into the holiday 🦃 season, I’d like to start by saying how grateful 🙏🏼 I am for you – whether you’re a current, past, or maybe future client, I love educating 📚 and helping you with your financial questions and goals 🥅 . You are part of my extended family, and I’m so happy to know you! This leads to my first tip for year-end financial planning.

1.     If you love your family, please take care of your own health 🩺.

I’ve processed many life insurance and long-term care insurance applications this year. On a positive side, I believe COVID-19 has more people than ever reevaluating what financial planners call the ‘risk-management’ sleeve of their personal financial life, which is so great! However, for better or for worse, the application process often reveals shortcomings in our past or current health picture. Some people weigh too much, drive too fast, smoke or chew tobacco or nicotine products, or have significant mental health issues (depression, anxiety, and sleeping issues are the most common). All of these potential findings may lead to insurance companies declining coverage to applicants or giving them less-desirable health ratings, which may significantly increase their premiums.

So please, please, please take care of your own health: visit your primary care physician at least annually, and take care of all the other check-ups that arise, especially as you get older (mental health, mammograms, colonoscopy, prostate exams, skin checks, dental health, etc.). And encourage your loved ones to do the same! I find that while this year, EVERYONE is ‘too’ busy, your families’ well-being counts on you, so no more excuses – make those check-up and follow-up health appointments!

And lastly, despite all the difficulties that sometimes arise in insurance applications, if you’re personal situation has you in a role of major breadwinner OR major caregiver, you may want to consider life insurance as well as review the type of insurance and appropriate levels of coverage periodically. 

There are many types, of which I’m more than happy to discuss, but term life insurance may be the least expensive if you’re still in working/accumulation years. When our thoughts turn to decumulation and estate disposal, we also talk about other types of insurance products that continue beyond a specific ‘term.’ And if you’re not sure or would like to learn more, contact me email: cvalega@greenbeeadvisory.com to discuss your situation.

2.     Consider a ROTH IRA conversion this year 👏👏(discuss this with your CPA if this is an appropriate strategy for you).

The 2022 Budget Proposal is currently discussing removing the ability to do back-door ROTH IRA conversions, as well as removing the ‘mega back door ROTH contributions’ which certain retirement plans allow for (this is a discussion in and of itself, so if you’d like to learn more, please contact me). 

If you are in a high tax-bracket, be aware that the current Budget discussions include raising the top income tax bracket from 37% to 39.6%. Thus, you may want to consider some proactive tax planning this year, always in coordination with your CPA. It may be a great year to consider a ROTH IRA conversion. This results in additional taxable income for the year, but the hope is that you’ll pay a lower tax rate this year than you may pay in following years if you would wind up in a higher tax bracket.

Also, sometimes clients discuss pairing a ROTH conversion which increases taxable income with a Donor Advised Fund which reduces taxable income, to reduce the tax-bite of the conversion – see the next bullet for more info on Donor Advised Funds.

And if you’d like to learn more about Biden’s 2022 Budget proposal, go here: https://taxfoundation.org/biden-budget-proposals/

3.     If you had a high-income year, and are charitably inclined, you may want to consider a Donor Advised Fund 🎁.

In the years when you’ve earned more than you had anticipated and have already maxed out your tax-deferred retirement savings possibilities, you may want to discuss the option of creating a Donor Advised Fund 🎁 with your CPA. These funds provide you with a vehicle to invest, grow🌱, and give 💝 assets to your causes of choice, as well as tax-deductions for your contributions to the fund in the year you give them. Some clients who sell businesses, or have low-cost basis stock, may have particular reasons to consider this vehicle.

It is also a great tool to discuss philanthropic giving with your children 👩‍👩‍👧‍👧. You may even want to discuss this during the Thanksgiving season – allowing kids to vote or produce their own recommendations for who to send year-end support to. Just be sure to make to submit your year-end grant recommendations to the Fund with enough time for processing – Donor Advised Funds are typically slammed in November and December – so be sure to process your paperwork with enough time for completion. 

4.     Review your social security statements.

Did you know that the (current) MAXIMUM possible social security benefit to be paid out is $3,148/month? And if your spouse qualified for 50% of your benefit, they could be paid $1,574/month? Combined, that equates to a maximum Social Security Income benefit for a couple of $56,664/year. 

Irrespective of your long-term views on your potential social security income checks in retirement, I recommend that you review your Social Security Earnings statement every year for accuracy. 

You can create an account here: https://www.ssa.gov/myaccount/retire-calc.html . Also, if you are not working and building your Social Security earnings history, please remember, you’re missing out on a potentially significant source of income in retirement.

5.     Review your current estate planning documents 📜.

As a Certified Financial Planner ®, I consult my clients to review their estate plan every few years. And, in fact, to help your adult children draft basic documents as well. I find this especially important when you have adult (in age) children away at school. As soon as my girls turn 18, I work with an estate planner to draft a very basic Will, Power of Attorney, and Health Care Proxy. This gives me peace of mind that should something arise, I can access information and help them make decisions, if need be.

AND, if you live in a state like MA, you may want to consider reviewing your estate plan to discuss how to best disperse your remaining assets at death to minimize estate taxes for your heirs. While the current Federal Estate Tax limits are $11.7mm per person, Biden’s 2022 proposed Budget is discussing reducing these limits to potentially $3.5mm per person. However, the MA estate tax exemption remains at $1mm per person, which many of my clients surpass simply by being a property 🏠 owner in New England 🍁. 

The bottom line is that if you haven’t reviewed your estate planning documents for several years, now is the time to pay a visit to your estate planning attorney.

To summarize, while there are always countless investing, tax-planning, and other strategies to discuss, my 5 topics for year-end planning are among the highest in terms of discussion priority this year:

1.     ALWAYS take care of your health (this year and every year!).

2.     Discuss with your CPA if a ROTH IRA conversion is appropriate for you this year.

3.     Consider a Donor Advised Fund.

4.     Evaluate your social security earnings statement.

5.     Review your current estate planning documents.

As an independent financial professional, I’ve focused my practice on understanding the challenges 🤔people face in preparing for retirement and sustaining their lifestyles throughout retirement. That’s why I employ acomprehensive and personalized approach that takes all of your needs, tolerance for risk and goals into perspective before making recommendations or proposing strategies.

When you call or visit my office, you’ll meet with someone who will listen in an effort to understand your needs and desires. As an independent financial professional, I have no sales quotas to meet, or company agendas to promote—ensuring your goals always come first.

Please call 📞 me at your convenience and allow me to introduce myself and learn more about your concerns. It would be my pleasure to help you pursue the sustained retirement lifestyle you envision for yourself and your family. To discuss ways of optimizing your financial plan to sustain a healthy and happy retirement, please call 📲 me at 781-850-4610, if you prefer, you can reach me at 📧 cvalega@greenbeeadvisory.com.