Investor Minute Series: Special Edition
How to Think about Year End Planning: Looking Back, Looking Forward to Retirement
A sailing ship is a good metaphor for retirement planning. In both cases, you chart out where you want to go, and carefully estimate what you’ll need to complete each leg of your journey.
On an ocean voyage, you can acquire knowledge and perspective from the maps used by successful sailors before you. However, there are many factors you can’t predict such as weather. So you bring along the equipment to repair your ship in case you’re hit by a storm, as well as extra provisions in case you end up in the doldrums where there’s no wind to move your vessel forward.
In both sailing and investing, it’s important to have a comprehensive review periodically—a careful inspection to help make sure everything is in working order so you’re ready for whatever you encounter next.
As you save for retirement, conducting an end-of-year review works well because it coincides with a seasonal cycle in your life and because it gives you time to take needed action on potential changes before the new year.
The first thing to look at is how your retirement saving has stacked up. Have you maximized your allowable contributions? This can save you money on current taxes as well as help to ensure you’re not leaving any employer contributions on the table.
If your income has gone up during the past year, have you proportionally increased your retirement contributions? It’s easy to let your discretionary spending rise to soak up extra income, instead of using this increase as a “ratchet” point for growing your nest egg.
Next, look for ways to potentially lessen your tax liability. This can include obvious things like reviewing deductions and sending off those charitable contributions you’ve been meaning to make. At a more complex level, this can mean employing strategies like offsetting capital gains by harvesting losses in taxable accounts. This is something you’ll need to discuss with your advisor and tax professional.1
Another important area for review is your insurance coverage. It’s something many of us really don’t want to think about until we need it. Unfortunately, that’s when it’s too late to make needed changes. Knowing your most valuable assets are adequately protected from damage and liability, and that your family may be provided for in case you unexpectedly pass away, is a vital component of our overall plan.
Finally, end-of-year is a good time to look at your personal spending. What needless expenses could you have avoided? Review your bank and credit card statements to make sure you’re not still paying for recurring services or memberships you’re not actually using.
Are there major purchases you need to plan for? Are there debts you should be making it a priority to pay off? Were there areas of your budget that were difficult to stick to?
If you haven’t been using a budget in 2021...you know what we’re going to say about 2022.
Tracking your spending is one of the keys to financial success. If you’ve struggled in this area, contact your trusted advisor. They’d love to help you set up a budget that’s simple, effective, and flexible enough to be used by multiple spenders in your family.
A year-end review can help you save more and knowing exactly where you stand financially can bring great clarity and confidence about your situation. No better time than the present to take action on your financial future.
Let us know how we can help. You can call or make a virtual appointment.
Sources:
1. https://www.kiplinger.com/article/retirement/t023-c032-s014-guide-to-year-end-financial-planning.html
Disclosure:
The views expressed herein are exclusively those of Efficient Advisors, LLC (‘EA’), and are not meant as investment advice and are subject to change. All charts and graphs are presented for informational and analytical purposes only. No chart or graph is intended to be used as a guide to investing. EA portfolios may contain specific securities that have been mentioned herein. EA makes no claim as to the suitability of these securities. Past performance is not a guarantee of future performance.
Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such. All opinions expressed herein are subject to change without notice. This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. You should note that security values may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Investing in any security involves certain systematic risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk. These risks are in addition to any unsystematic risks associated with particular investment styles or strategies.