A Retiree’s 2021 Year-End Planning Guide

Retirees have a few things to consider as they approach the end of the year and prep their finances for 2022.

Markets were dynamic throughout the year, driven by a robust recovery from pandemic-driven lows in 2020. Prices and inflation expectations have also risen in step with the buzzing economy. And as Congress reconvenes there’s some uncertainty swirling around potential tax law changes.

There are a host of reasons to conduct a quick check-in on your retirement goals and the financial plan you’ve crafted to achieve them. This is an opportune time to check in with your financial advisor or representative to tie loose ends from 2021 together and prep for 2022. Ensure your income plan is keeping pace with rising prices, for example, or ask whether you may have additional tax risk exposure with new policy proposals. Years of financial planning and saving have set you up to get the most out of your retirement, and these year-end check-ups can help you do just that.

Meantime, here are a few other housekeeping items worth tending to at year end to keep your retirement plan driving forward.

Determine if you need to take an RMD: A Required Minimum Distribution (RMD), is a minimum amount of money that you must withdraw from employer-sponsored retirement accounts and individual IRAs. Generally, you’re required to begin taking RMDs by April 1 the year after you turn 72. Every year after that, you’ll want to take your RMDs before Dec. 31 to avoid penalties.

Consider a Qualified Charitable Distribution (QCD): If you don’t need the money from your RMD, you can gift up to $100,000 to charity annually and it all counts toward your RMD. A QCD isn’t taxable as income, but you also won’t get a charitable deduction. You’ll want to talk with a tax professional if the scenario may work for you.

Keep wills and trusts up to date: Review your wills and/or revocable living trust to ensure you have the appropriate executors, trustees and guardians in place heading into 2022. Also, you’ll want to make sure your beneficiaries are up to date — especially if you’ve welcomed a grandkid or two to the family. Remember, an estate plan is incredibly practical even if you don’t have extensive wealth. Everyone, regardless of net worth, should have one in place.

Rebalance your portfolio: Market leadership shifted a few times in 2021, and inflation starting rising. Given changes to the market and economy, your exposure to stocks, bonds or other assets may not line up with your preferred level of risk. In retirement, it’s still important to own stocks, bonds, and other assets in your portfolio to generate income and leave you the potential for growth¹. Rebalancing your portfolio brings your asset allocation back in line with your comfort level.

Review annual and lifetime giving: You may want to consider giving income-producing assets to children in lower income brackets to reduce the family’s overall tax burden. If you have a large estate, you may want to take advantage of favorable current tax exemptions to make large gifts to dynasty trusts that can endure for multiple generations. The 2017 tax law effectively doubled the gift, estate and generation-skipping transfer (GST) tax exemptions. However, that may not be the case if tax policies are altered in the future, and as of this writing Congress was set to review tax policy within weeks. While legislative outcomes may be uncertain, there are proactive steps you can take if you’re concerned about estate tax changes, for example. This may be as good of time as ever to think about ways to reduce your federal estate tax burden².

Update your budget: Review your 2021 spending and build your budget for 2022. Sticking to a budget can help you understand where your money is going and if it's time to eliminate some expenses that may not be as important to you. You can build in any big-ticket expenses you anticipate in the coming year — medical procedures, travel, etc. Budgeting in retirement is important, given you’re living on the savings you’ve amassed as well as other guaranteed, fixed income streams. Balancing spending with your savings will help you make your money go farther, while making sure you’re able to spend on the things that are important today.

The end of the year can be a busy time for family and travel, but don’t let some of these key financial tasks slip through the cracks. Reach out to a financial advisor or representative if you’ve got questions about any of the tips above, or if you’d like to get the ball rolling get a head start on 2022.

¹No investment strategy can guarantee a profit or protect against a loss.

²This publication is not intended as legal or tax advice.  Financial Representatives do not render tax advice.  Consult with a tax professional for tax advice that is specific to your situation^.