What financial planning should I do in 2021?

Happy New Year! 2021 is upon us and was highly anticipated following a 2020 that included unprecedented stock market volatility, a pandemic, and social unrest at a level we haven’t seen in decades, to name a few things. We also know now that we have a pretty different looking government than we did a year ago and many people ask me what does all this mean for their financial plans.

I don’t know what will happen in the short term, I do think long term markets will continue to do what they’ve done in the past. I believe that there are a lot of risks right now, but that there’s also a lot of possibility for growth. While we still can’t predict the future, we can make or track our financial plans that consider some bad times in the market.

Here are some financial planning moves that might benefit you in 2021. First, review your financial plan and goals, second, consider tax benefitted savings, and lastly, make a leap toward your goals.

Review your plan

2019 and 2020 were great years in the markets. If you were indexing in US equity markets, you would have had double digit returns, which should be much higher than what you expected in your financial plan.

That’s great news, everyone loves higher than expected returns, and it presents opportunities for your financial plan. First, are you able to adjust your goals with the excess returns? If so, it may be time to rework your plan a bit.

Next, if you had higher than expected returns, it was almost certainly in a few areas. You most will almost certainly need to rebalance your investment allocation. Do you need to adjust some holdings so your allocation is in line with your risk tolerance? While reallocating is something I recommend doing periodically anyway, in years where you have outsized returns in a few areas, it’s more important to keep an eye on this.

Consider Tax Benefitted Savings Strategies

There are a lot of ways you can reduce your current or future tax bills when saving. Retirement savings accounts give you different benefits, they also have many different rules, income limits, and benefits. So, the saving strategy that’s best for you won’t necessarily be the best for someone else.

One big benefit I don’t hear enough about is the Retirement Saver’s Tax Credit. If you have a modest income, i.e. below $66,000, you can take advantage of the Saver’s Credit. There is a phase out between $39,000 of income for this, but it gives you a tax credit from the IRS when you save for your retirement. Let’s say your salary is $39,000. If you put $2,000 into a Roth or Traditional IRA, not only do you get the IRA benefits, you also get a 50% credit back on the money you saved, or $1,000 in this case. It’s a huge additional incentive to save.

As I mentioned, you can benefit from this if your income is below $66,000, but there is a phase out as income increases, so the higher your income, the lower the benefit. At $66,000 of income, your benefit is 10%.

There are some other considerations with this (you can’t be a student, a dependent, and must be at least 18 years old) so contact us, your tax professional, or check out the IRS page for full details and to decide if this is a good strategy for you.

 

If you don’t qualify for this, make sure you’re allocating your savings between pre tax, after tax, and tax free savings. They all have different benefits, some today and some in the future, but your financial plan will help you decide where to direct these dollars.

Take a Step Toward Your Goals

If you haven’t started saving yet, start now! Small amounts add up over time and making saving a habit will benefit you in the long term. If you have started, consider bumping it up to help get to your goals sooner. It’s tough for most families to start saving or increase. I get it. But making regular, small increases over time, makes it easier to get to your savings goals.

It also builds the practice of saving in your life and helps make it a habit. Once it’s a habit and part of your normal cash flow, it makes it so much easier to continue. Make saving a habit.

If there’s a time each year you have performance reviews, merit increases at work, or bonuses, maybe that’s the right time to make these increases. If you know you get a 3% increase in pay, consider increasing your savings by that amount. That way, you’re not losing any lifestyle by saving, you’re just increasing savings, improving your financial position, and getting closer to your long term goals.

Conclusion

I’ve said it before and I’ll say it again. If you don’t have a financial plan, I recommend you start working on one today. It doesn’t have to be complicated in the beginning, having some sort of map to help you start is the best first step. You can develop it over time.

Three things you can do now to help your financial plan for 2021 are review your financial plan, consider or adjust your tax benefitted savings, and increase your savings in a small way to help improve your financial position. Make sure your investment and tax allocations are in line with where they should be. Make sure your retirement savings are in line with your goals and maximizing the available benefits. If you qualify, consider taking advantage of the Retirement Saver’s Tax Credit for a double bonus. Make small, regular increases to your savings amounts to get to the saving amounts needed to achieve your long term goals.

If you’d like to discuss your financial situation or create a financial plan, Telos Financial would be glad to discuss a possible relationship with you. Contact us today to schedule an introductory meeting. Telos is a fee based, holistic financial planning firm serving Michigan’s high income and high net worth professionals, millennials, recent college graduates, and small business owners.

Thanks for reading the latest edition of Planning for your Purpose, Telos Financial’s blog, where I discuss different topics related to financial planning. CERTIFIED FINANCIAL PLANNER™ professional Dennis LaVoy is Plymouth, Michigan’s holistic financial advisor serving clients throughout the mitten as well as across the country.

The primary purpose of the blog is to introduce financial planning concepts and questions I receive from clients that I believe are important. I want to start discussions that will educate, benefit, and improve your financial life, ultimately, to help you focus on your telos!

Telos Financial is located in Plymouth, Michigan and focuses on serving young professionals and their families. Dennis LaVoy is a Certified Financial Planner® Designee and a Chartered Life Underwriter®. Dennis founded Telos Financial and to provide fiduciary financial services to families across Michigan including Plymouth, Canton, Ann Arbor, Detroit, and as well as all over the great United States of America.