Summer days are slipping away. Are you financially ready for Fall?
For most people, Summer is the season to relax and forget about your finances. That’s fine as long as you think about them again come Fall. Once you do, there are some easy financial moves you can make to help ensure you’re still on track to meet your retirement goals:
Smart tax moves;
Moves that make sense this Fall in particular;
Fall and the financial markets;
The single smartest financial move you can make this Fall.
First, let’s talk taxes. Spring is tax season, but Fall is when you still have plenty of time to take steps and save big on next year’s tax bill. For example, Fall is a perfect time to consider increasing contributions to your 401(k) or other retirement accounts. Pre-tax contributions can lower your taxable income now while boosting your source of retirement income for the future.
Next, Fall is a good time to familiarize yourself with year-end tax deadlines and take advantage of them. For example, rather than writing checks to your favorite charities in December to meet the deduction deadline, make a charitable contribution plan for the Fall. Not only will you get the tax breaks, but your money might do more good heading into the holiday season.
You can also do a paycheck review. This is a good annual exercise to make sure you’re paying the right amount of taxes up front each year. You can use the tax withholding calculator on IRS-dot-gov to figure out if you should adjust the amount withheld from your paycheck.
After that, make a list of deductions you know or think you might be eligible for, then make sure you’re tracking those expenses. For instance, if you’re self-employed and working from home, make sure you have all the information you need to file for a home office deduction.
Finally, if you’re over age 72, make a plan for your required minimum distributions if you haven’t yet. As you know, Congress suspended RMDs for 2020, but they are back for 2021. Everyone’s situation will be different, but if you don’t take your RMD by December 31st, you could face a huge IRS penalty.
• There are things you can do all year to lower your tax bill.
• Maximizing your IRA and 401(k) contributions is smart for a lot of reasons.
• Don’t delay setting your RMD strategy because that’s a biggie.
Be sure to track down any missing money. Are you still waiting on a refund or outstanding money from a stimulus check? What about a reimbursement for overpaid taxes on unemployment income you received during the pandemic? Millions of Americans are. Ever since the pandemic started, the IRS has been overwhelmed, making delays more common than usual. However, it’s a good idea to make sure your situation is only a delay and that you haven’t fallen through the cracks. You can find out if your payment is still processing at IRS-dot-gov.
Additionally, if the coronavirus forced you to dip into your rainy-day fund, start rebuilding it this Fall. If you don’t have a rainy-day fund, it’s recommended that you start one. It should be a savings account with enough in it to cover three to six months of living expenses. In an event like the pandemic, it could be what saves you from having to dip into your retirement accounts and getting hit with a big tax penalty for doing so.
Lastly, review your progress toward your financial goals. Many Americans did have to pull from their retirement savings during the pandemic. Even if you weren’t one of them, reviewing your retirement strategy this Fall is important because the pandemic changed the financial markets. Is your allocation still right considering those changes?
• The pandemic was a huge rainy day for a lot of people.
• Fall is always a good time to review your financial strategy.
• The pandemic had major impacts on the financial markets.
Historically, there’s a perception that Fall and the financial markets don’t get along. It’s based mainly on the October Effect: the idea that financial declines and market crashes occur in this month more than any other. The panic of 1907, the great crash of ’29, and 1987’s Black Monday all happened in October.
Even though Wall Street has also enjoyed plenty of strong Octobers, the October Effect can still have an impact because the markets are so emotional. Just the fear of an impending market drop can be what causes the drop, even if that fear is irrational. Could it happen this year? Well, for most of this year, investors haven’t shown they’re afraid of anything other than inflation. As a result, the stock market has been ruled by optimism and all three major indexes have hit many new record highs.
However, the bond market tells a different story. After rising steadily early this year, the yield on the 10-Year Treasury rate leveled off this spring and has trended downward ever since. That suggests an increasingly high demand for bonds and the greater security they provide relative to stocks. In other words, the bond market is a lot less optimistic heading into Fall than the stock market.
With all this in mind, this Fall is the perfect time to revisit your financial strategy and make sure it’s providing you with adequate protection and flexibility. Better protection in case the October Effect proves real again, and flexibility so you’re well-positioned to take advantage of any market changes that occur. But don’t wait until October. Make an appointment with the right advisor immediately after Labor Day!
• The stock market’s optimism has been understandable in some ways but surprising in others.
• We’ve already seen this year how important it is to have the right level of protection and flexibility in your portfolio, and how the income model can provide it.
You need to make a commitment to learning about all your savings and investment options. You may think you know all the financial tools and strategies available to you, but in my experience most people don’t. As a result, they end up using the wrong strategy just because they don’t know a better alternative exists. When I say better, I mean an option better suited to your situation, needs, risk tolerance, and retirement goals. Sure, you might know all about common stocks, mutual funds, and bond funds because those are probably the options you’ve used most often throughout your working life.
However, there’s an entire universe of other options available that can make a lot more sense once you’re in or nearing retirement. This, of course, is the universe of income-generating strategies, and it’s a much broader and more versatile universe than people realize. CDs, government bonds, and municipal bonds are still part of it, just as they were in your parent’s day, but Income Specialists today have a much larger and more dynamic range of tools and strategies at their disposal. The more you learn about them, the more you realize how the right mix can provide you with not just a good financial strategy, but the right strategy specifically for you. Educating yourself about these options is a great first step toward being able to take advantage of them with the help of the right advisor, naturally.
• Fall is back to school season, and it’s also when a lot of Income Specialists get serious about education.
• Learning more about them can be a real eye-opener for people.
• Income-based goals are what most people have.
Fall doesn’t officially arrive until late September, but for most of us Labor Day marks the transition out of Summer and into a new season. While Summer is all about fun, Fall is more serious, and therefore it’s a great time to get serious about your finances. As mentioned, just making a commitment to learning about all the savings and investment options available to you is probably the smartest financial move you can make this Fall. Beyond that, there are also moves you can make around taxes, budgeting, and your portfolio that might greatly improve your financial situation before 2021 is history.
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