January is here, and while you may have quite a few goals ahead of you this year, one of them should be your retirement. Whether you’re retiring in 2022, 2026 or just retired, there are a lot of things to consider.
Everyone, depending on their situation, needs to think a little about their retirement.
We ask you to start right now by writing down your goals, such as:
- Savings goal
- Income goal
- Family goal
Even if you’re retired, you should have a goal. Maybe 2022 is the year to see family members you haven’t seen in a long time. January is the time of year to set goals, and it is so emotional when you look back at your goals and notice that you’ve checked a few goals off your list.
However, we’re going to be diving into other retirement issues and what we recommend that you do to start the year off right.
Getting Your Cash Flow in Order
If you’re still saving, you’re on the accumulation side of cash flow. Right now, you should sit down and consider any extra cash you may have from:
- Side hustles
- Business opportunities
- Work opportunities
Understanding your cash flow is crucial, and it’s important to know whether you can expect any additional or less income this year. Make notes on the income and expense side of cash flow.
You might have paid off a mortgage – which is huge – and that’s going to drastically change your cash flow.
Knowing how much cash you have available allows you to contribute more to your:
- Roth IRA
You might find that you can work towards maximizing out your 401(k) this year. If you have a spouse that doesn’t work, they can also contribute to an account in their name based on your income to reduce your tax burden further.
Anyone qualifying person with a Roth IRA can contribute to their account with tax-free growth.
Cash flow has a lot of moving parts, but it’s an area that you really want to focus on this year when planning for your retirement.
If you have certain benefits, you may want to begin thinking of ways to maximize certain accounts, such as your:
With an FSA, you need to use a certain amount of money or lose it this year. Take the time to ensure that you’re utilizing this money so that you don’t waste it.
Retirees – those lucky folks who are already enjoying life after work – you need to think about:
- Required minimum distributions (RMDs). You will be required to begin taking these distributions at 72. You’ll suffer a significant penalty if you miss your RMDs.
- Qualified charitable distribution (QCDs). You can use an RMD to donate to charity.
You need to take the start of the year to really look at your cash flow, all the money coming in and going out, and make a yearly plan on what steps you need to take this year for your retirement.
Next, we’re going to be talking about another major consideration: assets.
You need to have a thorough review of your assets at the start of the year, and you need to look at emergency funds, savings accounts and so on. For example, if you have a lot of money in the bank, you might want to think about putting some of this money into an account that can earn interest.
You might want to investigate opening a brokerage account, bonds, or something other than a savings account that earns you very little.
Next, you need to consider risk tolerance.
What is risk tolerance?
How much risk can afford to lose in the market? For example, if you have $100,000 and you lose 10%, are you okay with losing that money? If so, think about whether you had $1 million and lost $100,000 of that money.
In both cases, you’re down 10%.
It’s crucial to review your risk tolerance. Major events can change your perspective, too. A few major life changes that add or remove risk are:
- Paying off a house
- Loss of a spouse
Risk is always evolving, and you need to reallocate your assets as your risk goes up and down.
Additionally, we’re in a market where interest rates are very low. Mortgage rates are still under 3%, which is very beneficial. So, if you are interested in refinancing, now is the time to consider it because we may never see rates this low again.
Debt reduction is a major part of your wealth, so it’s crucial to consider:
- Paying off credit cards
- Tackling high-interest debt
Debt holds you back from reaching your financial and retirement goals, so work towards eliminating it in any way that you can.
Tax Issues and Concerns
Taxes are coming up, so it’s time to expect your 1099s, W2s and so on. Unfortunately, the government isn’t going to offer an extension this year – not yet. So, April 18 (it’s a little different this year) is the tax date.
A few of the things we would like you to do to jumpstart your tax planning are:
- First, contribute to your IRA, which is allowed until your filing date.
- Track your realized gains and determine whether you have losses that can offset these gains.
- Consider your Roth conversions. These must be done by 12/31, so start thinking about that now.
You’ll also want to begin gathering all your documents, including any information on charitable donations, to have everything you need when you go to see your tax advisor.
Finally, we want to discuss a few legal issues and concerns.
Legal Considerations Going Into 2022
Annually, it’s crucial to review your estate plan and ensure that you have all of your most important documents in order. Primarily, there are two main documents that we’re going to talk about, but there are many that need to be considered.
The two big ones are your:
- Power of Attorney
- Medical Power of Attorney
If you’re married and have an IRA, your spouse cannot access the accounts without a Power of Attorney. Families that rely on IRAs to pay their bills will need to have a Power of Attorney because if it’s not present, there’s no way to legally access the money in the account.
You’ll also want to consider reviewing, creating, or updating your:
- HIPPA forms
It’s crucial to have all these documents updated if you have already created them.
It’s easy to procrastinate when you have an estate plan because no one wants to think about their demise. But unfortunately, we’ve seen far too many people think they’ll live forever and something drastic upends their plans.
You can’t predict the future, but you can opt to put all your estate planning documents in place to ensure that all your wishes will be followed if you pass on or become incapacitated.
While there’s a lot to think about in 2022, it’s crucial to begin thinking about the points above now.
You’ve worked hard to get where you are in life, and a quick annual checkup of things will allow you to continue living the life that you built for yourself.
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