Entering the New Year: Why Your Financial Plan Must Go Beyond Investments
By Steve Gaito
McDowell County
As the new year begins, many people resolve to improve their finances. But too often, the focus is solely on investments. While investments are crucial, they’re only part of the bigger picture. A strong financial plan also addresses your income, taxes, and estate.
- Investments: More Than Returns
Investments are often the most visible part of a financial plan. People track their portfolios to see gains and losses. However, focusing only on returns can lead to costly mistakes.
Diversification Beyond Assets
It’s essential to diversify not just by asset class but also by tax strategy. Taxable, tax-deferred, and tax-free accounts all play a role. Properly structured portfolios provide tax efficiency, flexibility, and reduced risk.
Managing Risk as You Age
As you are near retirement, your ability to recover from market downturns diminishes. Reallocate assets to ensure your money lasts as long as you do. Products like indexed universal life (IUL) insurance may help you balance risk and reward.
- Income: Cash Flow Matters
Your retirement lifestyle depends on your ability to turn savings into income. It’s not just about how much you’ve saved but how you access it.
Creating Multiple Streams of Income
Gone are the days of relying solely on Social Security or pensions. Today’s retirees earn income from Social Security, retirement accounts, annuities, and part-time work. Each source has unique tax rules and risks.
Smart Withdrawal Strategies
Withdrawing from the wrong account at the wrong time can increase taxes and reduce your savings. Withdraw from Roth IRAs (tax-free) in high-income years and from traditional accounts in low-income years. Plan withdrawals carefully to keep taxes low.
- Taxes: The Wealth Killer
Taxes can quietly erode your wealth if not properly managed. Every dollar saved on taxes is one you can reinvest, spend, or pass on.
Tax Diversification
Having a mix of taxable, tax-deferred, and tax-free accounts gives you flexibility to withdraw strategically. This approach allows you to control your tax rate and reduce lifetime taxes.
Legacy Tax Planning
If you leave your heirs a traditional IRA, they’ll face taxes on withdrawals. But Roth IRA passes to heirs tax-free. Life insurance policies can also provide tax-free benefits to your family, doubling as a legacy tool and a source of retirement income.
- Estate Planning: Your Legacy Matters
Estate planning isn’t just for the wealthy. Without a plan, your family may face delays, legal expenses, and unnecessary taxes.
Wills and Trusts
A will is a good start, but trusts offer more control over how and when your assets are distributed. Trusts help you avoid probate and protect your family’s financial future.
Health and Power of Attorney Documents
Ensure you have the power of attorney for finances and a healthcare proxy. If you’re unable to make decisions, someone you trust can step in on your behalf.
Review Beneficiary Designations
Your IRA, 401(k), and life insurance policies are distributed based on beneficiary designations, not your will. Review and update these to ensure they’re accurate.
Action Plan for the New Year
This year, go beyond focusing on investments. Take a holistic approach to your finances by addressing income, taxes, and your estate.
- Evaluate Investments: Check for proper diversification in asset classes and tax structures.
- Review Income Sources: List all retirement income sources and their tax implications.
- Plan Tax-Smart Withdrawals: Withdraw from tax-free accounts in high-income years and tax-deferred accounts in low-income years.
- Update Estate Plans: Review wills, trusts, and beneficiary designations.
- Consider Legacy Tools: Use life insurance and Roth conversions to protect your wealth for future generations.
Conclusion
As you enter the new year, take a broader view of your financial future. Investments alone aren’t enough. Integrate your investment, income, tax, and estate plans to create lasting security for you and your loved ones. This holistic approach will give you peace of mind and help you leave a legacy.
Start the year off right by scheduling a free consultation and learning how a comprehensive plan can benefit you. Morgan.wylie@retirerm.com or (828) 559-0299
Happy New Year
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Steve is the owner of Faith-Based Health Care and Retirement Resource Management. He is a National Speaker on the topic of Social Security optimization, quoted in national publications like Money Magazine, US News and World Reports, and Fox Business. Steve loves to educate and teach on financial topics like taxation of retirement accounts, long term care, healthcare, and efficient savings plans for small businesses. He has provided financial planning for missionaries through the International Mission Board. You can find Steve at 68 South Main St. in Marion, NC by calling 828-559-0299, email steve@faithbasedhc.com or visit his website at www.faithbasedhc.com.
Read more, good Christian news from Steve Gaito HERE.
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