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Financial Planning Tasks for the New Year

U.S. News and World Report Smarter Investor

Get a good start to the new year.

As we finish the year and sing the last chorus of “Auld Lang Syne” to bring in the New Year, there are several wealth planning tasks that are important to consider and take action on.

We all make New Year’s resolutions with the best intentions, often after we’ve had too much champagne. “I’m going to join a health club, get back in shape, stick to a healthier diet, and lose ten pounds.” Sound familiar? Those are great resolutions, but you should also add the following to your goals. It’s a short list and is very doable.

Review your financial saving goals. Consider your specific circumstances, define your saving goals, and budget for them. Review the status of your liabilities and debt: Is it time to accelerate your repayment schedule? Is your emergency fund properly funded? Are there changes to be made to your contributions to retirement plans? Make decisions in January and take definitive steps to make your saving goals happen.

Check your withholding allocations. Start by determining your income level for the coming year: Will it be higher or lower? If you overfund your withholding, the government gets a “tax-free loan” with your money. If you underpay, you’ll have to be certain to have the tax dollars available next April 15. Speak with your tax professional to help estimate how much to withhold. You might also investigate some online calculators to help.

Take a look at your withdrawal rate on your investment portfolio. Is the income covering your survival expenses? Survival expenses are mandatory expenses that must be met without exception, regardless of market conditions. Typically, these expenses include your grocery bill, mortgage, taxes, utilities, health insurance, and clothing. Calculate your current withdrawal rate. If it’s greater than 4 percent, you may be at risk of consuming your principal and running out of money. Given the volatility of the investment marketplace and the low yields associated with fixed income, it is vital that you have a firm understanding of your current investment withdrawal rate.

Maximize your retirement contributions. As our nation struggles with how to control its overspending, many feel that benefits associated with Social Security and Medicare will be reduced for future generations. Make sure you are maximizing your retirement plan contributions for 2012. The impact of your contributions over time can become significant in future years. The IRS recently raised the 2012 contribution limits to $17,000 per year ($22,500 if you’re 50 or older) for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan. An added plus for many employees is that numerous companies will match a percentage of your contribution, so check with your employer’s benefits manager for details. Finally, don’t forget about your IRA. You can always make a contribution to your IRA not to exceed $5,000 per year ($6,000 if you’re 50 or older). Check with your tax professional to see if you are eligible for a deduction on the contribution.

Enjoy the end of the year festivities, make your New Year’s resolutions, and try to keep them all. For assistance in this area, be sure to contact a financial planner or CFP(R) for help.

Read the article on U.S. News & World Report here! >

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for individuals. To determine which investment is appropriate please consult your financial advisor prior to investing.

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