End-of-Year Financial Planning

For individuals approaching retirement, year-end financial planning is an opportunity to review and refine their financial strategies. This process not only helps prepare for a financially stable retirement but also helps ensure that wealth management aligns with current goals, risk tolerance, and the ever-changing tax and economic environment.

At Johnson Wealth and Income Management, we understand that preparing for retirement requires attention to detail and comprehensive planning, especially as the tax landscape and regulations continue to evolve.

In this blog, we’ll walk you through essential end-of-year financial planning strategies tailored for affluent retirees in Iowa.

1. Evaluate Tax Strategies and Make Adjustments

One of the most powerful aspects of end-of-year planning involves minimizing tax liabilities. With shifting tax policies and potential tax reforms, it’s crucial to reassess strategies annually to stay ahead:

Harvest Capital Losses: Selling underperforming assets to realize losses—known as tax-loss harvesting—can help reduce taxable gains. This approach allows investors to offset gains with losses, lowering their overall tax bill for the year. For instance, if you have $10,000 in capital gains and $10,000 in losses, these can cancel each other out, resulting in no taxable gain. Be aware of the “wash sale” rule, which prohibits repurchasing the same or a “substantially identical” investment within 30 days of the sale (TurboTax).
Consider Roth Conversions: A Roth conversion involves transferring funds from a traditional IRA into a Roth IRA, allowing for tax-free withdrawals in retirement. This can be especially beneficial if you anticipate higher tax rates in the future. Roth conversions must be carefully calculated to avoid moving into a higher tax bracket, as taxes are owed on the converted amount.
Maximize Charitable Contributions: Charitable giving is an effective way to help reduce taxable income. Contributions to qualified charities can be itemized and deducted, potentially lowering your adjusted gross income (AGI). Additionally, donor-advised funds allow you to “bunch” charitable donations, giving you the ability to make a larger tax-deductible contribution in one year, while spreading out actual donations to charities over time.
Qualified Business Income Deduction: Business owners may benefit from the QBI deduction, which allows for a deduction of up to 20% on qualified business income. This deduction has specific requirements and limitations, so consulting with a tax advisor can help maximize potential benefits.

2. Review Required Minimum Distributions (RMDs)

For those age 73 and older, RMDs from qualified retirement accounts are mandatory and can increase taxable income:

Strategize RMD Withdrawals: RMDs can be strategically managed to help reduce tax impacts. For example, taking RMDs earlier in the year versus waiting until the last minute can help ensure you avoid penalties for missed distributions. If you don’t need the RMD for immediate expenses, consider using it to fund a Qualified Charitable Distribution (QCD) directly to a charity, which can help satisfy your RMD without increasing your taxable income.
Consider Deferred Income Annuities for Later Years: A deferred income annuity (DIA) can offer a guaranteed income stream later in life while delaying income tax liabilities. DIAs provide a way to stabilize income, especially if longevity is a concern, by creating a dependable cash flow when other assets may be diminishing.

3. Optimize Your Investment Portfolio

Regular portfolio reviews are essential for high-net-worth individuals, particularly to manage risk and help ensure that their investments are aligned with retirement goals:

Rebalance for Risk Management: Rebalancing adjusts your portfolio to its original asset allocation, helping reduce unintended risk from over- or under-exposure to certain asset classes. For example, if equities have outperformed, they might make up a larger share of your portfolio, increasing risk. Rebalancing back to your desired mix can help protect against market volatility.
Incorporate Tax-Efficient Investments: Tax-efficient investments like municipal bonds and tax-managed funds can help reduce taxable income and increase net returns. For instance, the interest on municipal bonds is often exempt from federal (and sometimes state) taxes, making them a valuable option for high-income individuals.
Health Savings Accounts (HSAs): HSAs are a unique tool for tax-free medical expense savings. Unlike other retirement accounts, HSAs offer a triple tax advantage—contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free (IRS). They’re an effective way to help cover future health costs, especially if you’re not yet eligible for Medicare.

4. Review Insurance Policies and Long-Term Care Needs

As you prepare for retirement, having the right insurance coverage is essential for helping protect your assets and managing healthcare costs:

Reassess Life Insurance Policies: Life insurance may no longer be essential if your assets can cover all expenses, or it might need to be repurposed to support your financial planning goals. For instance, a whole life insurance policy can provide a tax-free inheritance or even fund a trust for beneficiaries to help manage taxes.
Plan for Long-Term Care: Long-term care is also a significant expense for many retirees. Long-term care insurance or hybrid policies with long-term care riders can help protect assets. Having a plan in place for potential care needs can help reduce the burden on family members and help maintain financial stability.

5. Analyze Health Care and Medicare Options

Healthcare expenses, particularly in retirement, require careful planning:

Annual Medicare Review: During Medicare’s open enrollment, it’s beneficial to review your coverage options. Adding a Medicare Supplement (Medigap) policy or Medicare Advantage plan can help cover expenses that Original Medicare doesn’t, potentially saving thousands of dollars in out-of-pocket costs.
Plan for Healthcare with HSAs: Even after retiring, an HSA can help cover healthcare costs. Once you enroll in Medicare, you cannot contribute to an HSA, but you can use existing HSA funds tax-free on qualified medical expenses, making it a valuable resource.

6. Set Goals and Adjust Retirement Plans Based on Economic Conditions

Economic conditions play a pivotal role in retirement planning, affecting everything from investment performance to inflation:

Adjust Withdrawal Rates Based on Market Trends: High inflation and volatile markets may necessitate a more conservative withdrawal rate to preserve assets. Many professionals now recommend a dynamic approach to withdrawals, adjusting each year based on portfolio performance and inflation.
Evaluate Risk Tolerance and Adjust Allocations: Major life changes or shifts in economic conditions may affect your risk tolerance. Reviewing your investments regularly helps ensure they align with your tolerance, retirement horizon, and financial goals, allowing for adjustments as needed.

7. Leverage Professional Financial Advice

While navigating end-of-year planning, consulting a fiduciary advisor can help provide personalized guidance. An experienced advisor can help you maximize tax efficiency, protect assets, and navigate complex regulations that impact retirement planning:

Stay Informed on Regulatory Changes: With updates from the SECURE Act 2.0, such as the RMD age increase, advisors can help you adjust to new regulations and uncover new planning opportunities.
Create a Comprehensive Plan for Retirement: An advisor can help integrate tax planning, investment planning, and wealth preservation strategies into a cohesive plan tailored to meet long-term goals and address individual needs.

How Johnson Wealth and Income Management Can Help

At Johnson Wealth and Income Management, we specialize in helping individuals approaching retirement navigate the complexities of financial planning. Our dedicated team of advisors understands that wealth management isn’t just about growing assets—it’s about creating a comprehensive strategy that works for your unique goals, lifestyle, and vision for the future. Here’s how we can assist you in making the most of your end-of-year financial planning:

Retirement Planning: Every individual’s retirement needs and goals are unique. Whether you’re planning for early retirement, want to help ensure you leave a legacy for your heirs, or are looking for ways to maximize income during your retirement years, we provide tailored retirement strategies. Our advisors will help you assess your current financial situation and project future income needs, helping ensure that your retirement plan is aligned with both your lifestyle and legacy goals.

Tax Optimization Strategies: Taxes can take a significant chunk out of your retirement income. At Johnson Wealth and Income Management, we take a proactive approach to tax planning. From evaluating opportunities for tax-deferred growth to helping you understand how tax laws may change, our team helps ensure that you minimize your tax burden. We’ll work with you on strategies such as Roth conversions, tax-efficient investment options, and charitable giving to help maximize your wealth and reduce unnecessary tax liabilities. With our knowledge of tax laws and retirement accounts, we help you navigate these complexities and keep more of your money working for you.

Investment Strategy and Portfolio Management: As you approach retirement, maintaining the right investment strategy is critical to helping ensure that your portfolio continues to work for you while also providing stability and minimizing risk. At Johnson Wealth and Income Management, we design investment strategies tailored to your specific financial goals and risk tolerance. Our advisors use their experience to build diversified portfolios that are designed to help protect your wealth from market volatility while still delivering growth. We also review and rebalance your portfolio regularly to help ensure it remains aligned with your evolving goals.

Ongoing Monitoring and Adjustments: Your financial plan is not a one-time document—it’s a dynamic strategy that needs to evolve as your life circumstances and the financial landscape change. At Johnson Wealth and Income Management, we provide ongoing monitoring of your financial plan, portfolio, and retirement goals. We offer regular check-ins to help ensure that your plan continues to meet your evolving needs.

Client Education: We believe that financial planning is most effective when you understand the strategies and decisions behind it. That’s why we take the time to educate our clients on their financial options. Whether you’re exploring tax-efficient investment strategies or learning more about Medicare enrollment, we’ll help ensure you have the knowledge you need to make informed decisions. Our goal is not just to manage your wealth but to empower you with the tools and understanding necessary for your financial success. Our educational resources include:

Why Choose Johnson Wealth and Income Management?

At Johnson Wealth and Income Management, we’re experienced in helping Iowans approaching retirement in navigating the complexities of financial planning. Our team brings decades of experience to the table, providing knowledge in tax-efficient investment strategies, tax strategies, retirement income solutions, and more.

We understand the importance of personalized service, which is why we take the time to truly understand your needs, goals, and concerns. Our client-first approach helps ensure that we create tailored strategies designed to achieve your financial objectives while also providing peace of mind.

As we approach the end of the year, now is the perfect time to get started on your financial planning. If you’re ready to take control of your retirement future and help ensure a secure financial outcome, Johnson Wealth and Income Management is here to guide you every step of the way.

Final Thoughts

End-of-year financial planning offers retirees a vital opportunity to set a strong foundation for a financially stable retirement. By focusing on tax efficiency, portfolio adjustments, and healthcare strategies, retirees can proactively address potential financial challenges. Working closely with a knowledgeable fiduciary advisor provides a greater level of confidence and clarity, helping ensure your retirement plan is resilient and adaptable.

As you close out the year, set time aside for a thorough financial review, taking advantage of every opportunity to refine and enhance your financial future. For retirees in Iowa and beyond, these proactive strategies can make a world of difference in creating a prosperous and rewarding retirement.

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