One of the major concerns people have
when planning their retirement is how to protect their retirement savings from
unforeseen medical expenses. Healthcare costs have steadily risen, but adequate
planning can help maintain these costs in retirement. This article outlines
four ways to help protect one's retirement savings from unexpected healthcare
costs in retirement.
1. Maintain regular health checkups and
screenings.
Additionally, monitor your health and go
for regular checkups. Regular checkups can help detect any health issue early,
reducing potential medical costs. A healthier lifestyle can also decrease your
likelihood of developing chronic illnesses, which can be costly to manage in
the long run.
2. Establish a healthcare emergency
fund.
Another approach to covering unexpected
healthcare costs is opening and contributing to an emergency fund savings
account. This strategy creates a buffer to cover unexpected medical costs
without dipping into retirement savings. Continue to save so that you have
enough to cover the policy's yearly out-of-pocket deductible amount.
3. Purchase a comprehensive health
insurance plan.
Consider investing in a comprehensive
health insurance plan. A good insurance plan is one of the most effective ways
to hedge against the risk of high medical expenses. Go for a plan that covers a
wide range of medical services, including hospitalization, doctor's visits,
prescription drugs, and specialist treatments. However, it is vital to
understand the terms and conditions before committing as some policies may come
with high deductibles and co-pays, which will impact out-of-pocket expenses.
4. Open a Health Savings Account or
Flexible Spending Account.
Next, address your contributions to
Health Savings Accounts (HSAs). An HSA is a tax-advantaged account that helps
individuals save for future medical expenses through payroll deduction.
Contributions made to HSAs or FSAs are typically not subject to federal income
tax at the time of deposit, which can help stretch your retirement savings.
A Flexible Spending Account (FSA) is an
employer-sponsored benefit that allows you to set aside pre-tax money to pay
for specific health care and dependent care expenses. FSAs can help you save
money on taxes because you don't pay taxes on contributions to the FSA.
Last, consider working with a financial
or insurance professional who is well-versed in planning for healthcare costs
in retirement. These professionals can assist in preparing you for any
unexpected healthcare expenses now and during your retirement years.
As the end of the year approaches, it's time to start thinking about what comes next for your finances in the New Year.
Reviewing your financial situation can help you evaluate your financial health
and set the stage for working toward goals in the coming year. Here is an eight-step
end-of-year financial checklist to work through as you pursue being on top of
your financial game in the New Year.
1. Review your budget.
The first step in your end-of-year review should be assessing your current budget. Did you stick to your planned budget throughout the year? If not, identify areas where you overspent or underspent, then make necessary adjustments for the coming year. For example, did you underspend on your retirement savings contributions? If so, adjust your contribution amount now. It's essential to analyze your current debt situation during your budget review. Understanding how much you owe and what interest rates you're paying can help you quickly prioritize which high-interest loans to pay off first and then next as you decrease your debts.
2. Update your goals.
Your goals need periodic reviews and updates. These could include paying off a particular debt, saving more for retirement, or building an emergency fund. Reflect on your progress towards these goals and revise them as necessary.
3. Check your credit score.
Another critical aspect of the
end-of-year financial review is checking your credit score. Improved credit
scores could lead to lower interest rates on loans, so monitoring your credit
score is crucial. Monitoring your credit score also helps you check for fraud
or if your Social Security number has been compromised. Make checking your
score at least a bi-annual event.
4. Consider tax planning.
Tax planning is essential to financial
management. With tax laws constantly changing, it's important to be aware of
any changes that may affect your tax situation. Consult with a tax professional
to help you understand if there are any actions you can take now before the
year-end to help lower your tax liability.
5. Review your investment strategies.
It is essential to understand how your
investments performed over the year. If your investments aren't performing as
you expected, or your goals have changed, it may be time to reconsider your
strategies.
6. Assess your insurance needs.
Our insurance needs may change as we go through life. Take time to assess if your current insurance policies are still adequate; if not, you may need to increase your coverage or purchase more insurance. An insurance review with financial and insurance professionals can help you determine suitable coverage amounts for your situation.
7. Set up automatic savings contributions.
Automatic savings contributions can help
you save more each month as you work toward your savings goal. By automating,
you can ‘set it and forget it,’ making saving more accessible.
8. Review your plan for retirement.
Planning for retirement is essential, no matter your age. Work with financial and insurance professionals to review your current retirement savings strategies, goals, and future retirement income needs, and make necessary adjustments to your plan now. Regular review provides a framework as you work toward an independent retirement.
An end-of-year financial review might seem overwhelming, but it is essential for maintaining an accurate picture of your financial health and goals. Follow this checklist and speak with a financial professional if you have any questions or concerns. They can help you navigate your situation and needs and provide personalized recommendations.
When giving gifts to our children or
grandchildren, or others close to our heart, we often default to the latest
toys or gadgets. However, the value of these items tends to diminish over time
in terms of both interest to the child and monetary value.
A different approach to gifting can focus
on investing in a child's future. This perspective offers more than instant
gratification; it provides lasting benefits that may help provide an
independent future for your loved ones.
Savings account- A savings account is a traditional way to invest in a child's future. Opening an account in their name provides them with a financial safety net and can familiarize them with saving from an early age. It encourages them to think about finances and manage money responsibly, setting a foundation they can build upon into adulthood.
529 Plan- Another worthwhile investment is education. A 529 or education savings plan is an investment account that offers tax-free withdrawals on the accumulation when used to pay for qualified education expenses. 529 plans can pay for college, K-12 tuition, apprenticeship programs, and education loan repayments.
Leftover 529 plan monies can be used to
fund a Roth IRA over five years at the allowable contribution amount. Visit
with financial or tax professionals to understand how this works.
Securities- For longer-term investing, consider investing in securities for the child. Explaining to them how these investment strategies work can provide invaluable lessons in economics, patience, risk-reward, and performance analysis. Over time, these investments will continue to accumulate value, providing additional returns.
Because taxation on securities gifted to
children can be complex, it's essential to consult financial and tax
professionals. The 'kiddie tax' can affect a child's tax liability on an
investment return or receiving financial aid. Therefore, you must understand
how this gift will impact the receiver.
Trust Fund- A trust fund is a legal structure that allows you to set aside assets for another person's benefit—your child's or grandchild's. You can transfer cash or investment strategies into the trust, which protects the assets from legal claims. Trusts must be formed with help from legal and tax professionals since they're considered legal entities with tax IDs. Therefore, fully understanding the pros and cons of a trust fund and its taxation is essential before determining if this strategy is appropriate.
Individual Retirement Account (IRA)- Contributing to an IRA for a child may seem premature. Still, the IRA’s accumulation over time may make a compelling argument for early investing. Although a child might not fully appreciate this gift in their youth, they can thank you when they are older and financially independent.
In conclusion, while toys and gadgets may
bring joy in the moment, they eventually become obsolete. By considering gifts
that invest in a child's future, you provide them with tools and resources that
have a lasting impact, setting them up for an independent future while
instilling valuable financial education.
The end of the year is the perfect season to work toward having your finances in order. This includes wrapping up all retirement savings contributions before employer-sponsored plans such as Keogh, Solo 401(k), and 401(k) and making strategic decisions about selling stock to realize gains or losses.
Here's how to 'wrap up' contributions as a gift to yourself before the year-end IRS deadline of December 31st.
Keogh Plan- A Keogh plan, or HR 10, is a tax-deferred pension plan available to self-employed individuals or unincorporated businesses. With these specialized plans, the contribution limit is up to a specific limit or 100% of earned income, whichever is lower. The IRS determines the contribution limit each year, so it's vital to consult with a financial or tax professional regarding this year's limit. Remember, you must make your year-end contributions by December 31st.
Solo 401(k)- The solo 401(k) plan is another well-known retirement savings strategy for self-employed professionals. This plan allows one to contribute as an employee and employer, increasing the permissible IRS contribution limit.
As a business owner, you can contribute up to this year's IRS limit through tax-deferred contributions, plus additional contributions as an employer that are tax-deductible to the business. As the year draws to a close, be sure you've managed your contributions to take advantage of the tax savings on contributions you and the company receive.
401(k), 403(b), and 457 plans- Managing your contributions is essential if you work in a job offering a traditional retirement savings plan such as 401(k), 403(b), or 457 plan. The total amount you can contribute each year is capped unless you're over 50 years old, in which case the limit increases through a catch-up provision.
Your 401(k) contributions must be completed before December 31st. Contact your HR department or consult your financial or tax professional for this year's limit.
Tax-loss harvesting- If you hold stocks or other investments, the end of the year is an excellent time to review your portfolio's capital gains and losses. A strategy known as tax-loss harvesting aims to mitigate the investor's total taxable income. Tax loss harvesting involves selling off an underperforming or losing investment to counterbalance the gains from a well-performing asset. Timing is crucial to fully optimizing tax loss harvesting. Typically, it is employed near the end of the calendar year when individuals clearly understand their total income, capital gains, and losses.
While tax loss harvesting can be beneficial, investors must understand that it's not a one-size-fits-all strategy. Before initiating this strategy, investors must consider their investment goals, risk tolerance, and tax circumstances. For this reason, engaging with financial or tax professionals is vital to help you understand whether tax loss harvesting is appropriate for your situation.
In conclusion, wrapping up your financial contributions before year-end is crucial to a confident financial future and can provide potential tax benefits. Take this time to reevaluate your goals, adjust your retirement savings contributions, and consult a financial professional to help you start the New Year with a well-designed financial roadmap.
Investment advisory services are offered through Wealth Watch Advisors, an SEC-registered investment advisor. Neither Wealth Watch Advisors or J. Martin Wealth Management, LLC are endorsed by the Social Security Administration or any other governmental organization. Note, registration with the SEC does not denote a certain skill level or guarantee the success of an investment strategy. Wealth Watch Advisors and J. Martin Wealth Management, LLC are independent of one another.