Financial Planning Focus - Autumn Cleanup for Your Financial Backyard

As the weather turns from hot and humid to cool and crisp, we often think of things we want to accomplish before the end of the year. Like leaves piling up in the yard, it usually feels like as soon as one item is crossed off your list, it is replaced by three more. Your financial to-do list often involves lengthy conversations with family and loved ones, as well as your professional network of advisors. Each conversation usually requires some actions, so the list continues to grow. To help with the yardwork, below are four ideas for you to consider. 

Make Sure Your Retirement Accounts are Invested: 
In the spring, you and your accountant determined how much you can contribute to your retirement accounts. More importantly, you made the contribution! Did you ever get that cash invested? Many clients that come to us for financial planning or asset management have self-directed IRAs with one or more years’ worth of contributions sitting in cash. While money market funds are paying more today than at any time since the financial crisis, your retirement accounts generally have the longest time horizon of any investment account you own. Cash isn’t taking advantage of the time horizon and tax deferred growth. Don’t try to time the market; the best time to invest is when you make the contribution. 

Maximize Retirement Savings through Reduced Payroll Taxes: 
For those still working and at high paying jobs, the end of the year offers a potential takehome wage increase – the social security payroll tax. W-2 employees currently pay 6.2% of their salary to the social security trust up to $128,700 in wages (for 2018). Once your year-to-date earned wages crosses $128,700, you stop paying into the social security trust and get a 6.2% “raise” for the remainder of the year. If you are not on track to max out your retirement contributions through a salary deferral retirement plan (401(k)/403(b)/TSP) – maximum contributions for 2018 are $18,500 or $24,500 for those older than 50 years old – you can increase your contribution by 6% without decreasing your take home pay for the remainder of the year. 

What Condition is Your Condition In? 
For many people, buying insurance is a one time event, and not a particularly memorable one: long questionnaires, in-person clinical appointments, etc. Whether we are talking term or whole life, disability or umbrella coverage, as your life changes so too does your need for coverage. Many of our clients are “empty nesters,” with grown children and paid off homes. Is that life insurance policy really needed anymore? For younger clients with another child on the way, do you have enough insurance to take care of your growing family if something happens to you? For those in higher risk occupations, is the elimination period of your disability policy longer than the amount in savings you have to cover living expenses? Make sure your insurable needs still match the policies you own.

Harvest Losses, but also Take Gains: 
After a 10-year equity rally, with growth stocks outperforming value for much of that time, many client portfolios are overweight in equities generally, and overweight in higher valuation growth stocks specifically. Even with the recent sell-off in equities, now is a good time to take some profits off the table. While it’s common for investors to sell the “losers” near year-end, this time of year is also a good time to take stock in how much in gains you can afford to realize, given your tax situation. With a new calendar year starting in just a couple of months, the gains required to get your equity exposure down to an appropriate level – or the gains needed to take your original investment out of that high flying tech stock – can be spread out over two tax years but in a relatively short amount of time. Remember, gains are good!
 

Important Disclosures

• Registration does not imply a certain level of skill or training.

• Any conclusions presented or hypotheticals presented are based upon facts derived from publicly available information, and are also based on certain assumptions, including that there are no additional changes to current law, and that demographic information regarding retirement accounts also remains unchanged. Further, hypothetical scenarios presented are solely presented for the purposes of demonstrating available retirement options, and do not include any information, analysis, or conclusions regarding other areas of an individual’s financial future.

• Certain information presented includes facts and analysis the accuracy of which is dependent upon current regulations regarding taxes remaining unchanged. Changes in tax law or other rules could materially, and adversely, affect any financial or retirement plan. Therefore, no person reading this material should accept this information as investment advice. 

• Some information in this presentation is gleaned from third party sources, and while believed to be reliable, is not independently verified.