March 2022

There is good news in filing your tax return for 2021 including higher standard deductions and more tax credits available. If you had cryptocurrency transactions last year, you may want to pay closer attention in reporting as the IRS is enforcing tightened crypto tax compliance. Consult your tax advisor for more accurate information about your personal situation.

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Our long-term financial goals will get derailed when we invest with emotions. One way to take our emotions out of decision making is to be disciplined and have a plan. Dollar-cost-averaging is a disciplined strategy to build wealth. Investing in qualified retirement plans is a good way to keep investing as we earn, without the need to time the market. If you have a lump sum fund and would like to invest in the down market, you may want to set a schedule to start investing when the market is down 5%, 10%, 20%, etc, from the peak. You can also set a time period to invest your funds within 3 months or so. There is no right or wrong way, depending on your risk tolerance and objectives.

We believe we may not be able to out-smart the market, but we can definitely “out-discipline” the market. Happy investing!

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We are a believer in tax diversification. It is wise to get immediate income tax savings by contributing to tax deductible retirement plans and accounts. If you think the tax rates are going up and most of your retirement income is taxable, you may want to build up tax-free income at retirement. A good strategy to build up tax-free income is to use a Roth IRA/401(k) plan. Although contributions are not tax-deductible, it grows tax-deferred and the distributions are tax-free without required minimum distributions (RMD) requirements. It is advisable to convert from your tax-deductible retirement funds to a Roth IRA when your tax bracket is lower. For retirees, their tax bracket is usually lower between the beginning of their retirement and age 72 when RMD hits. A Roth IRA can be a powerful estate planning and tax savings tool for your beneficiaries.

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Retirement can be an emotional life event. You have been dreaming about your retirement life and now that it has arrived, you may have mixed feelings about it. Losing regular paychecks with other uncertainties can be a scary feeling. You may have lots of questions such as, “Is my monthly retirement income enough and able to catch up with inflation?”, or “How am I going to spend my time?”. Planning ahead can help answer your questions and give you confidence to enjoy your retirement life. Working with a Certified Financial Planner (CFP®) and having a written plan will be beneficial to help you see it and believe it.

We highly recommend reviewing all your debt obligations and health care options at least six months before your retirement. This is crucial because once you no longer t have regular earned income, it will be difficult for you to obtain or refinance any debts. When you are at age 65, working or not, you may want to sign up for Part A of Medicare for free. Then you can compare different options such as those at your spouse’s workplace and other Medicare plans. With careful early planning and periodic reviews, you will feel free and confident to enjoy your retirement.

Full story: Barrons