There’s no denying that 2023 will be tough, but focusing on financial planning for the new year might help.
From soaring inflation and rising interest rates to the lingering effects of the pandemic and war in Ukraine, we can expect the economic landscape to remain unpredictable for the foreseeable future.
Yet, while there is little we can do to influence the global macroeconomic and geopolitical situation, there are plenty of ways to ensure our own finances are strong enough to handle whatever the next 12 months throw at us. .
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From tough math to close relationships, here are 10 things to consider in your financial plans as we head into the new year:
1. Audit your beneficiaries.
Now is a good time to review all of your savings accounts, insurance and retirement plans to make sure your designated beneficiary – that is, the person or people to whom the money is transferred in the event of death – is always the one you want. be.
2. Take advantage of higher limits on your deductions.
Increasing your withholding percentage to 9.76% will allow you to continue maximizing your 401(k) savings opportunity in 2023. For example, if you earned $250,000 in 2022 and maximized your contribution at age 49 or less, you would have a holdback percentage of 8.2% (a savings of $20,500 for the year). To take full advantage of the increased limit of $22,500, plan to increase it by 8.2% to 9% in 2023 (a 9.76% increase).
Meanwhile, if you are 50 or older, the appropriate percentage increase in your annual withholding rate is 11.1% to take full advantage of the new $30,000 limit. If you haven’t maximized your 2022 contribution, you should also consider increasing your withholding level by 10% in January or 2.5% quarterly to reach 10% by the end of 2023 .
3. Get the most out of your HSA.
A Health Savings Account (HSA) allows you to set aside pre-tax money to pay for eligible medical expenses you incur. It is also the latest triple tax-exempt investment vehicle available. Be sure to take advantage of it.
4. Decide how to use your Social Security pay base “Wage Raise”.
In 2023, Social Security will deduct 6.2% of your salary until you earn $160,200. So, if you earn $200,000, 6.2% will be deducted from your monthly salary until you reach this base of $160,200 (if you earn $200,000 per year, your monthly salary is $16,667 , so it will take about 10 months).
After that, Social Security stops coming out, essentially giving you an automatic “pay raise” of $1,033 per month in November and December (6.2% of your monthly salary of $16,667).
Rather than just letting that money disappear into your daily expenses, consider intentionally investing it in your savings. The more you earn, the faster and bigger this salary increase will be. By doing this over an entire career, it could become a considerable nest egg!
5. Leverage your RMD.
Government regulations regarding required minimum distributions (RMDs) require that you begin withdrawing from IRAs or 401(k) savings the year you turn 72. These payments are subject to tax.
So if you already have enough money to fund your lifestyle, why not consider using your RMD to invest directly in charity instead? You’ll be supporting a cause you’re passionate about without paying tax on the money.
6. Invest in self-care.
Taking care of our physical and mental health has never been more important, so put some time and money aside at the start of the year to fund personal care. In particular, try to schedule at least one long break (a week or two) as well as three shorter ones of, say, four to five days. You can use this time to recharge your engine. It might even be a smart way to use the automatic “pay raise” we talked about in tip #4.
7. Review your parents’ plans.
It’s hard to think about it, but there may come a time when your parents can no longer take care of themselves. So it’s a good idea to talk to them now about their financial portfolio and how they want their affairs to be managed in the future. That way, there’s less chance of unpleasant surprises impacting your own plans later.
8. Get your kids involved.
Just as you need to understand your parents’ plans, it’s a good idea to make sure your children understand yours – if they’re old enough to understand everything, of course! Have an open conversation with them about your financial situation as well as the values, causes and ethics you believe in and would like them to follow after you leave.
9. Decide which relationships to focus on.
Most of us would like to have more time to spend with our friends and family, but we find that the hustle and bustle of modern life gets in the way. So now is a great time to reflect on who you’ve managed to see enough of in 2022 – and who you haven’t. You can then plan how you will invest your time and energy in nurturing the relationships that are important to you in the coming year.
10. Boost your savings if you own a business.
A very effective way to stay ahead of inflation is to save more. If you own a business and have ample cash, you should consider investing in a cash balance plan.
This would save you up to $343,000 in addition to your 401(k) contribution and profit sharing. Don’t forget that contributions to a well-structured cash balance plan are fully tax deductible, making it a great way to accelerate your savings and build your retirement nest egg!
This article was written by and presents the views of our contributing advisor, not Kiplinger’s editorial staff. You can check advisor records with the SEC (opens in a new tab) or with FINRA (opens in a new tab).
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