There’s no escaping the fact that 2023 is going to be tough, but focusing on financial planning for the new year can help.
From rising inflation and rising interest rates to the ongoing effects of the pandemic and war in Ukraine, we can expect the economic landscape to remain predictably unpredictable for the foreseeable future.
Still, while there’s not much we can do to influence the global macroeconomic and geopolitical picture, there are plenty of ways to ensure our own finances are strong enough to weather whatever the next 12 months bring.
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From cold hard 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 that your designated beneficiary—the person or people to whom the money goes on your death—is still who you want it to be. to be
2. Take advantage of higher limits on your deductions.
Increasing your savings rate by 9.76% will allow you to continue to maximize your 401(k) savings in 2023. For example, if you earned $250,000 in 2022 and maxed out your contribution as age 49 or younger, you would have an 8.2% retention rate (saving $20,500 over the year). To take full advantage of the increased $22,500 limit, plan to increase it from 8.2% to 9% in 2023 (a 9.76% increase).
Meanwhile, if you’re 50 or older, the corresponding percentage increase in your annual withdrawal rate is 11.1% to take full advantage of the new $30,000 limit. If you haven’t maxed out your 2022 contribution, you should also consider increasing your withdrawal rate by 10% in January or 2.5% per quarter 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 money on a pre-tax basis to pay for qualified medical expenses you incur. It is also the latest triple tax free investment vehicle. Make sure you take advantage of it.
4. Determine how to use your Social Security wage base for a Pay Increase.
In 2023, Social Security will take 6.2% of your wages until you earn $160,200. So if you make $200,000, 6.2% will be deducted from your monthly salary until you reach that $160,200 base (if you make $200,000 a year, your monthly salary is $16,667, so it will take about 10 months).
After that, Social Security stops paying out, essentially giving you an automatic “pay raise” of $1,033 per month in November and December (6.2% of your $16,667 monthly salary).
Instead of letting that money disappear into your everyday expenses, consider putting it intentionally into savings. The more you work, the sooner and bigger this pay raise will be. Doing this throughout a career can add up to a substantial nest egg.
5. Use your RMD.
The government’s required minimum distribution (RMD) regulations require that you begin calculating any IRA or 401(k) savings when you turn 72. These payments are taxable.
So if you already have enough money to fund your lifestyle, why not plan to use your RMD to invest directly in a charitable trust instead? You’ll be supporting a cause you’re passionate about without taxing your money.
6. Invest in self-care.
Taking care of our physical and mental health has never been more important, so set aside time and money at the beginning of the year to fund self-care. In particular, try to plan at least one long break (a week or two) as well as three shorter ones, say four to five days. You can use that time to fuel your engine. This can 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, 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. Thus, there are less likely to be unpleasant surprises that will affect your own plans.
8. Get your kids involved.
Just as you need to understand your parents’ plans, it’s a good idea to ensure that your children understand your plans. Have an open conversation with them about your financial situation, as well as the values, causes, and ethics you believe in and would like to see them follow after you’re gone.
9. Decide what relationships to focus on.
Many of us wish we had more time to spend with friends and family, but find the busyness of modern life gets in the way. Therefore, now is the perfect time to think about the people you managed to see enough of in 2022 and the ones you didn’t. Then you can plan how you are going to invest your time and energy in cultivating the relationships that are important to you in the coming year.
10. Turbocharge your savings if you own a business.
A very effective way to stay ahead of inflation is to save more. If you are a business owner and have sufficient cash flow, you should consider investing in a cash balance plan.
This would save up to $343,000 In addition to your 401(k) and profit sharing contributions. Remember, properly structured cash balance plan investments are fully tax-deductible, making them a great way to accelerate your savings and build your retirement nest egg.
This article was written by and represents the views of our contributing advisor, not Kiplinger’s editors. You can check the adviser’s records with the SEC (opens in new tab) or with FINRA (opens in new tab).