Year-End Financial Planning: Your Bucket List Depends on it.

Have you ever thought about where you might be in the next 5, 15, 25 years?  I mean really thought about it….so much so that you actually carved time out of your busy day, put pencil to paper and recorded your thoughts in a notebook or journal.  And I don’t just mean where you might want to be physically, mentally or spiritually but, financially as well.  I’m guessing not too many people are raising their hand. For those of you who are, congratulations!  You are in the vast minority.  To be honest, way back when, I wouldn’t have had my hand raised either.  

 Hi, I am John Gigliello, a CERTIFIED FINANCIAL PLANNER™, with the Albany Financial Group here in Albany, NY and you are listening to INVEST IN KNOWLEDGE, a podcast about all things financial.

In this episode, I will be discussing some things you can do to shape up your personal finances for a great year-end.  The Fall is an ideal time to examine your financial health and update your financial plans.  

 Also as an added bonus, I’ll let you know at the end of the show how you can contact my office to get a free copy of the LAST CHANCE FINANCIAL PLANNING CHECKLIST, that will help you to organize the numerous items you should really be thinking about before year-end.  

 Now, I don’t know about you, but I just love this time of year.  The humidity disappears and the cooler weather starts to settle in.  The leaves are turning color and you start to settle back into that routine that seems to have disappeared over the Summer.  My family and I make it a point to go apple picking every year and you just can’t beat those cider donuts, can you?  

 And that brings us to the heart of why we are here today; It’s time to get organized again and think about year-end planning.  No matter your age, I feel you can benefit from what I’m going to discuss today.  I have 6 areas of personal financial planning that I want to discuss and instead of bouncing all over the place, I want to try to follow these in a check-list type of manner.  This will then coincide with the planning checklist I mentioned earlier in the show.  

Transcript

Have you ever thought about where you might be in the next 5, 15, 25 years?  I mean really thought about it….so much so that you actually carved time out of your busy day, put pencil to paper and recorded your thoughts in a notebook or journal.  And I don’t just mean where you might want to be physically, mentally or spiritually but, financially as well.  I’m guessing not too many people are raising their hand. For those of you who are, congratulations!  You are in the vast minority.  To be honest, way back when, I wouldn’t have had my hand raised either.  

 Hi, I am John Gigliello, a CERTIFIED FINANCIAL PLANNER™, with the Albany Financial Group here in Albany, NY and you are listening to INVEST IN KNOWLEDGE, a podcast about all things financial.

In this episode, I will be discussing some things you can do to shape up your personal finances for a great year-end.  The Fall is an ideal time to examine your financial health and update your financial plans.  

 Also as an added bonus, I’ll let you know at the end of the show how you can contact my office to get a free copy of the LAST CHANCE FINANCIAL PLANNING CHECKLIST, that will help you to organize the numerous items you should really be thinking about before year-end.  

 Now, I don’t know about you, but I just love this time of year.  The humidity disappears and the cooler weather starts to settle in.  The leaves are turning color and you start to settle back into that routine that seems to have disappeared over the Summer.  My family and I make it a point to go apple picking every year and you just can’t beat those cider donuts, can you?  

 And that brings us to the heart of why we are here today; It’s time to get organized again and think about year-end planning.  No matter your age, I feel you can benefit from what I’m going to discuss today.  I have 6 areas of personal financial planning that I want to discuss and instead of bouncing all over the place, I want to try to follow these in a check-list type of manner.  This will then coincide with the planning checklist I mentioned earlier in the show.  

 But before I begin, I want to issue you a challenge. I’m going to challenge you to take some time…..clear your mind….. and write down where you want to be in 5, 15, 25 years.  I want you to create a “blueprint” so to speak, of what you want your financial future to look like.  And this exercise is not just for the younger folks out there.  I will be 60-years old next March, and I have a pretty good idea of what I would like to be doing when I’m 65, 70, 80 and hopefully older.    Don’t limit yourself.  Think outside the box and think big.  I know the phrase of “creating a bucket list” is somewhat cliché, but that’s just what I want you to do.  A few items on my bucket list are to play a round of golf at Pebble Beach and St. Andrews in Scotland, visit (not climb) the Matterhorn that sits in the Alps on the Switzerland, Italy border and to the opening guitar riff to one of my favorite rock songs, Layla, by Derek and the Dominoes.  

Now, once you have your “Bucket List” I want you to start to get specific as to how you are going to do these things and what it will cost you financially.  Since this is a podcast about All Things Financial, I of course want to address those “financial” concerns.  When you start to think about accomplishing financial goals, I want you to be specific.  I want your financial goals to follow the acronym S.M.A.C.  In fact, I want all of your goals to be SMAC certified.   It’s hard to accomplish a goal unless it’s:

1.    Specific.  You need to be as specific as possible in order to have the best chance at achieving your goals.  For example, “I want to be rich someday” or “I don’t want to be working when I’m 70” is not exactly specific.  A better way to phrase these two ideas might be “I will have $1.5M in my company retirement plan by March 1, 2026 so I can retire on my 65th birthday.”  Now that’s specific.  And notice I said that I “will” have $1.5M instead of “I want to have” $1.5.  A subtle but huge difference in mindset. You are planting a seed in your subconscious mind that you WILL achieve this goal.   

2.    Measurable.  This goes hand-in-hand with specificity.  Take the phrase “I want to retire in my 60’s so I can enjoy life before illness sets in.”  How do you measure that?  It’s too vague, too many variables.  I much rather prefer, “I will retire on my 65th birthday and travel to 5 countries before my 70th birthday.”  Or if I want to master that opening riff to Layla, I might plan to “practice 30 minutes a day, 5 out of 7 days a week for the next 3 months.”  Love it.  

3.    Achievable.  Can the goal you are seeking actually be accomplished?  Is it realistically achievable?  “I will have $47M in my IRA by the time I reach my 50th birthday” is certainly specific and measurable.  But for the average Joe, it’s not going to happen.  Compare that with, “I will save 20% of my paycheck for the next 3-yrs to save for a down-payment on my first house.”  Likewise with my guitar playing ambition, it’s not realistic or achievable for me to practice 2 hours a day, 6-days a week to master that riff.    

4.    Consistent or Congruent.  Whenever you set a goal, it has to be consistent or congruent with who you are as a person.  If it’s not a reflection of who you are, then you’ll have difficulty accomplishing it.  For example, and for me personally, reading books and taking classes on the Art of Selling in order to make more money selling investment products or financial advice is inconsistent or not congruent with who I am as a person.  I’ve never really considered myself a good sales person and you know what…..I’m OK with that.  I prefer to let my work do the talking for me.  To become some alpha-salesman is just not my personality.  Be consistent and congruent with who you are as a person.

OK, enough about bucket lists and goal setting.  Let’s dive into year-end planning.  

 1.    The first area I want to mention is taxes and I already know what you’re thinking….boring!  Come on John, you said in your podcast trailer that you were going to keep this lively and interesting.  Well sorry to lead off with this subject, folks, but there’s just no way to make the Internal Revenue Code exciting!  But if you listen closely, you can walk away with a few good nuggets of information here:

a.    Try projecting your income for 2021 & 2022.  Did you receive a large refund in 2020 or have a large balance-due?  Ask yourself:  Why?  If you’re happy that you received a $3,000 refund (or higher) in 2020, you shouldn’t be.  That’s an interest-free loan the government has had for the past year.  Did you owe a lot of money on April 15th?  Hopefully not enough where you had to pay a penalty for underpayment of taxes.  

b.    Did you sell any investments last year for a profit?  I don’t mean your house, but stuff like stocks, bonds, mutual funds, your stamp collection? Well, you may have to pay tax in addition to the taxes you pay on your salary or wage income.  If you lost money on the sale, you may be able to deduct that as well.  

c.      Did you get married or have a child this year?  Could be a tax benefit waiting for you.  There are quite a few existing tax breaks out there and some new ones under the Biden Tax initiative that focus on The Family, of which you need to be aware.  Seek out a qualified tax expert to get help.  

d.    Haven’t filed your taxes lately?  Oh boy, we need to talk.  A fair number of citizens feel that they can “fly under the radar” so to speak and not pay their fair share.  Well I’m here to tell you that the IRS is the largest collection agency in the world and 99 ½ times out of 100 they are going to find you.  Don’t stick your head in the sand and hope they go away.  Find a qualified tax preparer and make things right.  

2.    Let’s move on to retirement.  Now when the topic of retirement comes up, most think of the 50 and 60 year-olds in the room, but you millennials need to take notes as well.  You see the younger you start saving for retirement, the more options you potentially may have later in your working careers.  I would like to see all of those folks still working and in the “accumulation” phase of building a nest-egg to save $.20 for every dollar they make.  Well, you might be saying to yourself “I can’t save that much John, I won’t be able to pay all of my bills.”  To which I would reply, “then you’re spending too much on stuff that doesn’t matter!”  Budgets are painful to develop and implement, but are priceless for managing your money.  Some other areas in retirement planning include:

a.    Maxing out your 401(k) contributions including catch-ups.  At the very least, contribute enough money from your paycheck to maximize the company match, if you get one.  For 2021, the employee contribution cap is $19,500.  If you’re over age 50, you can contribute another $6,500.  Once you’ve done that, do the same with IRA contributions.  Try to max out all qualified or tax-advantaged retirement plans before you invest in a taxable account.  

b.    Does it make sense to perform a Roth IRA conversion?  Maybe, maybe not.  It depends on current tax rates, future tax rates, your legacy plans, your life expectancy, your income, etc.  Told you in the trailer this was all confusing, didn’t I!  Look, the IRS is going to get their tax money one way or another.  Either at the point you convert your traditional IRA to the Roth IRA or at age 72 when you need to start taking your required minimum distributions from your traditional IRA.  Everyone’s circumstances are different.  

c.     Consider the different social security claiming strategies.  Wow, I could record a whole new podcast on this subject (and probably will.)  Although “file and suspend” and the restricted application are no longer in use (except for certain cases) there are still ways to optimize your claim.  And no, I don’t believe social security will go bankrupt any time soon, but measures do need to be taken by the politicians in Washington at some point.    

d.    Lastly, are you self-employed or thinking of starting your own business?  Well, there are several tax-advantaged retirement-plans for those entrepreneurs out there, but there are minefields as well so make sure you seek out competent advice.  

3.    Next area I would like to talk about are your investments.  This is always the sexy part of financial planning that many people love to discuss and speculate.   Well, there are sound, fundamental, time-tested strategies that you need to be aware of with your investments, such as:

a.    Every time you make an investment, it should be made with a purpose.  There should be a definite goal and strategy to the investment.  It may be for college education funding, retirement, a house purchase and so-on.  And there is a difference between investing and saving.  Think of investing more for intermediate to longer-term goals and savings for shorter-term goals such as a down payment on a house purchase in 2-4 years.  This time-frame that I mention brings me to my next point

b.    When investing in the stock market, your time-frame or time horizon plays a huge role.  When investing in the stock market, you should have at least a five-year time horizon.  Anything less would be considered speculating rather than investing, because of the volatility that may be associated with a shorter time period.  A normal economic cycle typically lasts around five years1 with an economic boom, an economic downturn and an economic recovery.  This cycle is important to keep in mind when you are making your investment decisions.  Obviously investing at the height of an economic peak may not be the best strategy.  

c.     Here’s an odd question? Do you like pie?  Personally speaking, there are very few types of pie that I don’t like, with peach being my favorite.  Well, there’s one very important type of pie that you should be concerned with in the investment world and that is your asset allocation or pie chart.  Pretty clever how I worked that in, right?  Now, you may have seen this colorful little pie chart on your investment statements and it reflects how much you have invested in stocks (or equities), how much you have invested in bonds (or fixed income) and how much you have invested in “other” categories of assets.  This concept of asset allocation goes hand-in-hand with diversification, another important concept in investing.  I’m sure you’ve heard of the old adage about “not putting all of your eggs in one basket” because if you do and the basket falls, all of your eggs…..well you get the idea.  Well, the same holds true for your investment portfolio.  You probably should not have 100% of your account invested in either stocks or bonds unless there’s a really good reason or goal or strategy as I mentioned in my first point.  Ok, so now you’re saying to yourself, John….I understand the importance of having a strategy for my investments and…..that I need to properly assess my time-horizon and to have a properly diversified portfolio….but what do I actually invest in?  I mean there seems to be thousands of options?  Well, I’m glad you asked.  This leads to my last point on investing…..

d.    So what’s the difference between stocks, bonds, mutual funds, exchange-traded funds, alternative investments and so on…..I’m so confused.  I would love to dive into the details here, but in the interest of time, we’ll save that for another podcast.  But suffice to say for this podcast, that the various investment alternatives that I’ve mentioned above are just “the vehicles” to get you to where you want to go, so to speak.  For example, if you’ve decided that stocks or equities are an appropriate asset class for you based on what we’ve discussed so far, then, how will you invest in stocks?  Are you going to buy the individual stocks of specific companies?  You can, but have you taken the time to research whether or not it’s a good time to buy, say Coca-Cola or Home Depot given its current selling price and other market conditions?  If you don’t feel that you have the technical expertise to make such a decision, then you can hire someone to do that for you.  You would then invest in a mutual fund, that employs a portfolio manager (or team of managers) to do all the research and stock selection for you.  Of course, these people don’t work for free, so there are expenses associated with the purchase of mutual funds.  Keep in mind that there are also expenses and fees associated with the purchase of individual securities as well.  I think we’ll save a discussion on exchange-traded funds and alternatives investments for another day, as I can already sense you’re getting a migraine.

4.    Now we couldn’t have a podcast and talk about sound financial planning unless we had an overview on insurance.  Yes, just like alarm clocks, big government and colonoscopies…..life insurance could be included on the list of necessary evils in life.  In its most basic form, the purpose of any type of insurance is to provide financial security.  Insurance coverage pays out a specific amount of money to the beneficiaries triggered by some event.    

a.    As you are probably aware, you can buy insurance for many different reasons.  There’s life, homeowners and renters insurance, automobile and motorcycle insurance, disability and LTC insurance, health and travel insurance, umbrella and pet insurance….heck there’s even hole-in-one insurance.  I pay $36 a year for hole-in-one insurance at my golf club.  You see it’s customary in golf that if you score a hole-in-one, you have to buy drinks for all the members.  Well, we have about 350 members at our golf course and at $8 per drink, you can see why it’s well worth it to have hole-in-one insurance.  

b.    The three main questions to ask yourself about insurance are:

            i.    Do I even need insurance?  For example, a single, 22-year-old male or female probably doesn’t need life insurance, since there is most likely no one who is dependent upon them for income.  However, a family of four with two young children would be the ideal scenario for life insurance.  

           ii.    If I need insurance, what kind do I buy?  Should that family of four with young children buy a 20-year term policy or variable universal life insurance policy?  It depends.  Should your homeowner’s insurance policy include coverage for fair market value or replacement value of the home?  Should I buy a LTC policy with no inflation protection and save premium dollars or should I pay extra for the inflation protected policy?  It depends, it depends, it depends.  Everyone is different.  Each case is different.  

            iii.    Lastly, if you have determined that you need insurance and the type, then how much should you have?  Sorry to sound like a broken record, tangled cassette or distorted MP3, but the answer is:  it depends.  For instance, with life insurance you want to make sure that you have taken into account the insureds earnings capacity as well future costs, such as spousal living expenses, mortgages and college tuition expenses.  For homeowner’s insurance, if your house burns down, you really want to consider the amount needed for the replacement cost to rebuild it instead of the depreciated value at the time of the fire.  

c.     Of course, when you own insurance, you always want to monitor and identify any material changes that arise in your life, business or financial circumstances that may require insurance adjustments.  A $100k policy each for two married adults with no children may be adequate at the time, but when little Jr comes a long everything changes.  Now, you will have someone (other than your partner) that is truly dependent upon you for income.  

5.    At certain points in life, we reach various ages that would be considered “milestones” for financial planning purposes.  These ages mostly occur in our 50s and 60s and are important to remember since we may suffer financially if we are not alert.  Those milestone dates are:

a.    At age 50, you can make catch-up contributions to IRAs and some qualified retirement plans.  In 2021, that catch-up amount is $6,500 for 401(k), 403(b), 457(b) and Roth 401(k) plans.  For those with SIMPLE IRAs, the catch-up amount is $3,000.  This provision was meant to help those who may have started saving later in life.  

b.    At age 55, you can take distributions from 401(k) plans without penalty if retired.  At age 59 ½, you can take distributions from IRAs without penalty.  Some of you may be thinking, “What’s he talking about paying a penalty??  This is my money, what’s up with that?”  Well, the gov’t gives us a tax-break on these types of retirement plans by deferring the income tax we owe on the earnings until age 72 for most plans.  They really want us to use that money for retirement purposes.  They don’t like it very much we use that money for purposes other than retirement.  With some exceptions, a 10% penalty is imposed for those distributions that are not for retirement purposes.  

c.     At ages 62-70 you can apply for Social Security benefits.  Here’s another topic that’s ripe for a podcast.  Signed into law in 1935 by President Franklin Roosevelt in 1935, he stated, “We can never insure 100% of the population against 100% of the hazards and vicissitudes of life, but we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age.”  Remember, this was written during the great depression.  The Federal Insurance Contribution Act, or FICA for short, allows you to earn credits for social security benefits as you pay taxes during your working years.  I’m reminded of a funny line in a movie where a young adult is looking at the withholding section of their paystub and quips how “I keep giving my money to this guy FICA.  I don’t even know who he is!”  Anyway, Earning social security credits may not mean much now to the younger folks listening, but it certainly will as you approach your retirement years.  

d.    Once you reach the jolly age of 65, a huge milestone kicks in.  You now can apply for Medicare.  Medicare was established in 1965 and was intended to ensure a basic level of health care for older people by paying some of the costs of some health care services and is funded through Medicare payroll taxes and monthly premiums.  Much more to say about Medicare in an upcoming podcast.  

e.    The last milestone to mention comes at age 72.  For all of those folks out there who have contributed to tax-deferred retirement accounts such as 401(k)s, 403(b)s and traditional IRAs, you know that you have not been taxed on the earnings.  And you may be wondering when you will have to pay these taxes.  Well, I hate to rain on your parade, but at age 72 (current law) you will be required to withdraw a portion of your tax-deferred account and pay your income tax.  These are called required minimum distributions or RMDs for short.  And there’s danger ahead if you neglect to take your RMD in the form of a 50% penalty.  Yes, that’s right….a 50% penalty on the amount that you should have taken for your RMD.  

6.    Now, I haven’t covered a few other areas of financial planning that I would consider important, such as debt management, cash and budget planning and estate planning.  But those will be subjects for future podcasts.  I would like to close-out this podcast however, with a list of events or changes that may occur in your life that would warrant, in my estimation, a re-evaluation of your financial plan. Again, in check list order they would be:

a.    Did you sell a major asset like your home, business or other real estate?  

b.    Did you transfer any major financial assets?  By transfer I mean did your re-register or change the title or ownership of any major assets.  

c.     Did you refinance your house?  

d.    Did you change or lose your job?

e.    Did you get married or did you end a marriage? 

f.      Did you add to the family through birth or adoption? 

g.    Did you lose a loved one? 

h.    Do you have a parent or other family member in need of assisted living? 

i.      Is there a severe illness in the family? 

j.      Did you receive a gift or inheritance?  

If you answered yes to any of these questions, you should really update your financial plan.  Give us a call….we’re here to help. 

So now you are better equipped to sure up your finances for a great year-end 2021 and can optimistically plan for a better 2022.  It really is within your power.  Many times we focus (myself included) on the things in life we cannot control.  Now is the time to get your financial house in order.  Reach out to us at www.jgigliello.com for your free copy of the LAST CHANCE FINANCIAL PLANNING CHECKLIST to help you with your journey.  Now that IS in your control.  Thanks for listening and remember to subscribe if you like what you hear.  Make it a great day!

I am a registered representative with and securities are offered through LPL Financial, Member FINRA/SIPC. Investment advice is offered through Private Advisor Group, a registered investment advisor. Private Advisor Group and Albany Financial Group are separate entities from LPL Financial. 

 
 The Last Chance Financial Planning Checklist was compiled by Horsesmouth, LLC, 2021. Reference to the economic cycle is according to www.economicshelp.org.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. This is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.

Individual tax and legal matters should be discussed with your tax or legal professional.