December 2022

Dec 27

Your 2022 Year-End Financial To-Do List

By Drew Capital Group Financial Planning

The end of the year is upon us. Here are some tasks to check off before 2023 arrives!

As the year wraps up, it can be a great time to take financial inventory. Your circumstances are constantly changing and evolving, and the proper financial plan is not meant to be a set-it-and-forget-it thing. With the end of the year presenting the perfect chance to revisit your goals, here are a few areas you may want to check in on before we flip the calendar to 2023.

Review Your Financial Plan

The proper holistic financial plan isn’t just about your investments or your retirement. It also accounts for budgeting to achieve long- and short-term goals, making sure you have adequate insurance to hedge against financial risks, planning for wealth transfer to your heirs and/or charities, looking ahead with a plan to mitigate taxes—really every aspect of your financial life. As the year comes to a close, it can be a great idea to reassess your financial circumstances and make necessary adjustments to your financial plan. Maybe your goals have changed. Maybe you’re on a fast-track toward goals you expected to take longer to reach, so you can move some dates up. Remember, it’s always important to make sure that your beneficiaries are up to date annually on all of your accounts, investments and insurance policies. This time of year, while it’s in the front of your mind, you can use the tools and resources at your disposal to update and to reinvent your financial plan to more closely match your situation.

Adjust Your Monthly Budget

A budget is an important part of any financial plan, and having one can be a great way to keep track of where your money comes from and where it goes. Now that we’re in the final month of the year, you may be in a good position with a clear vision as you revisit your budget and adjust as needed. Maybe you received a nice annual bonus or raise, or maybe you’ve recently had a baby and haven’t had a chance to fine-tune your budget through the sleepless nights. No matter your circumstances or the new milestones and stages of life you reached in the past 12 months, it can be a really good idea to take a look at how your income keeps up with your expenditures and tweak accordingly.

Review Your Investments

It’s important to understand that diversifying with different asset classes can help protect your portfolio from market volatility, which is especially important as you get closer to retirement. Most traditional retirement accounts like 401(k)s have funds invested in the market, so they are not protected from market risk. This may be perfectly fine when you’re young, but as we saw with the high inflation, higher interest rates and increased volatility of 2022, it can cause panic for retirees, pre-retirees and people who are risk averse. Be sure that your overall portfolio positions you with a level of risk you’re able to tolerate, and that your retirement is protected.

Recalibrate Your Retirement Account Contributions ^[1,2,3]

Your retirement accounts may be your greatest assets when it comes to funding a comfortable and stable lifestyle in retirement. As you traverse your career and attempt to carve out a lifestyle that will be sustainable once you get the chance to quit working and chase your retirement dreams, it’s important to know how much you’re allowed to contribute to your various accounts. For example, in 2022, the contribution limit is $6,000 for traditional and Roth IRA accounts, and it is $20,500 for 401(k)s. In 2023, those limits will increase to $6,500 and $22,500, respectively. If you’re 50 or older, you’ll also be able to make catch-up contributions of up to $1,000 to your IRA and $7,500 to your 401(k) as soon as the new year hits.

Take Your RMDs ^[4]

Unfortunately, your retirement accounts cannot be left to grow tax-deferred forever. If you turned 70 after July 1, 2019, you must begin taking annual required minimum distributions, or RMDs, starting at age 72. The amount you must withdraw is typically calculated using life expectancy as determined by the IRS. Failure to adequately withdraw funds will result in a 50% excise tax, which is considerably higher than even the highest federal income tax withholding rate. Luckily, accounts growing tax-free, such as Roth IRAs and Roth 401(k)s do not have RMDs, but the deadline to withdraw the minimum amount from tax-deferred accounts is Dec. 31. If you’ve reached the age at which you must take the distributions, it can be beneficial to ensure that you’ve withdrawn the proper minimum amount from the right accounts to avoid a hefty penalty.

Spend Money Left in Your FSA ^[5]

Health savings accounts (HSAs) and flexible spending accounts (FSAs) offer a chance for those with employer benefits to cut medical costs by contributing pre-tax dollars that are allowed to be used for qualifying expenses. Unlike HSAs, however, FSAs do not typically allow you to roll your excess funds into the next year. You may have a grace period provided by your employer, but even the grace period often comes with a limit as to how much can roll over. Some ideas to avoid losing funds left in your FSA include booking general wellness appointments like visits to the eye doctor, annual physicals and dental cleanings.

Talk to Your Financial Professional or Advisor

The job of a financial professional, planner or advisor is to offer complete and personalized service for your holistic plan. That means assisting you with your unique circumstances and goals, helping you set realistic and reachable objectives while inspiring you to stretch farther and drive harder toward your ideal portrait of a comfortable lifestyle. Whether you’re looking to check off all of these boxes as the year ends or start 2023 with fresh goals, we can help!

If you have any questions about your end-of-year financial checklist, please give us a call. You can reach Drew Capital Management in Tampa, Florida at (813) 820-0069.

Sources:

This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All views/opinions expressed in this newsletter are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC.

Life Insurance

Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.

Taxes

Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. You should always consult your own legal or tax professional for information concerning your individual situation.

Dec 01

Love0

5 Common Mistakes to Avoid with Medicare

By Drew Capital Group Health Care Expenses, Retirement Planning

Medicare can be tricky. Here are some common mistakes to avoid!

The Medicare open enrollment period has begun, so we thought it would be a great time to discuss some of the most common mistakes retirees make when it comes to their healthcare. Along with your streams of income that you’ve created for yourself during your career, Medicare is one of your most important tools in retirement. It can protect you against medical emergencies that could be financially devastating, especially when you’re living on a fixed income.

It is, however, important to know that Medicare has its limitations, potentially making you susceptible to mistakes when signing up and choosing a plan. Far too often we visit with and hear about retirees who aren’t aware of how Medicare works or how to correctly utilize it as a tool for protection. We believe that many of the headaches could be avoided simply by knowing the obstacles that may present themselves along the way, thereby allowing you to prepare for what’s ahead. Let’s go over the five most common Medicare mistakes, as well as a few ways to avoid them.

Not Understanding What It Is

In 2021, two-thirds of Americans were covered by a private insurance plan, meaning that they were either part of a group plan through their employer, or they sought out coverage from an insurance company on their own^[1]. While private insurance plans may differ on a case-by-case basis, they generally function similarly with premiums, deductibles and various amounts of coverage in each plan. In comparison with the healthcare insurance you may have had during your career, Medicare has slight yet key differences.

For example, Medicare has four parts: A, B, C and D. Parts A and B are usually referred to as Original Medicare, with Part A covering visits to hospitals and skilled nursing facilities as well as hospice care and some home-based healthcare. It is free for those who qualify, which includes those age 65 and older who have contributed Medicare taxes for 10 years or longer.

There are, however, monthly premiums for Part B, the portion of Medicare that covers the cost of outpatient care, such as standard visits to a general practitioner.

Parts C and D can be a bit trickier for those first signing up for Medicare. Part C is commonly known as a Medicare Advantage or Medigap plan, and these plans generally replace Parts A and B (and often Part D) with a plan through a private insurance company which gets subsidized by the government. Part C Medicare Advantage or Medigap plans can also include extra coverage like dental, vision and hearing.

Part D is prescription drug coverage, which is not included in Original Medicare Parts A and B but can be added for an additional premium amount.

No matter which plans you choose, Medicare premiums typically come directly out of your Social Security benefit, and it is important to account for those deductions when figuring your Social Security benefit into your net income.

Overestimating Its Capabilities

As we mentioned above, Part A of Medicare is free to those who qualify, potentially generating the common misconception that Medicare as a whole is free for those in retirement. In reality, only premiums for Part A come at no cost to the insured, which still doesn’t include 2023’s $1,600 deductible for hospital visits^[2]. Part B comes with a standard monthly premium which will be $164.90 per month in 2023. Increasing and enhancing your coverage with a Medicare Advantage plan can also hike your rates, and the cost of Part D can increase with a penalty for missing your initial enrollment period.

When planning your retirement, it’s important to know that those with higher incomes pay more for Medicare, and there is a two-year look-back on your income per your tax returns when determining how much you will pay.

It’s also important to know that Medicare does not cover long-term care. While no one likes to think about the prospect of leaving their home, their possessions and their loved ones behind, 70% of today’s retirees will need some type of long-term care, and 20% will need it for longer than five years^[3]. When the national annual median cost of a private room in a nursing home can top $100,000^[4], it’s easy to see where the problem lies. It may be helpful to look elsewhere for long-term care coverage, including into a long-term care insurance policy or a life insurance hybrid policy that includes assistance to pay for long-term care if you need it or a death benefit for your beneficiaries if you don’t.

Signing Up Outside the Initial Enrollment Period

You are not automatically enrolled when you qualify for Medicare at age 65, you must enroll yourself. There is a seven-month enrollment window which starts from the three months before your 65^th birthday, the month of your 65^th birthday and the three months following your 65^th birthday.

Failure to enroll during that period could cause you to incur permanent surcharges.

For instance, with Part D prescription drug coverage, you may incur a penalty. That penalty is calculated by taking 1% of the “national base beneficiary premium,” which is $32.74 in 2023^[5], and multiplying it by the total number of full months you’ve gone beyond your initial enrollment period. For example, with next year’s national base beneficiary premium, if you delayed enrollment for Part D by 12 months, your premium would be an additional $3.93 per month.

Picking the Wrong Plan

In the same way that your healthcare plan during your career probably had limited coverage, Medicare Advantage plans and Medicare Part D plans cover different providers and prescription drugs^[6].

That’s why when you’re considering Medicare options, it’s important to have a list of your doctors and medications in hand. Consider working with a Medicare specialist who can help you choose between multiple carriers rather than going it alone.

Neglecting to Revisit the Plan During the Open Enrollment Period

Medicare open enrollment runs annually from Oct. 15 through Dec. 7, so now is the perfect time to review your options. And remember, as you get older, your needs will likely change. You may move. You may begin to see different specialists or healthcare providers. Almost certainly, your need for different prescription drugs will change. As those needs change, so can your Medicare plan.

The open enrollment period gives Medicare beneficiaries a plethora of options in changing their coverage to tailor it to their unique circumstances. For example, you can opt to change your Original Medicare plan to a Medicare Advantage plan, or vice versa. Furthermore, you can change your Medicare Advantage plan to a different one that offers more complete coverage for your care. Finally, it gives you the ability to customize your Part D coverage, whether you’re adding it to your current plan, removing it from your plan or changing it to accommodate your needs^[7].

Too often, Medicare beneficiaries have improper coverage, leaving them scrambling to pay for their care. You can revisit your plan each year during the open enrollment period to help ensure that you aren’t stuck with medical bills you could have avoided.

If you have any questions about retirement issues like Medicare, please give us a call! You can reach Drew Capital Management in Tampa, Florida at (813) 820-0069.

Sources:

Your 2022 Year-End Financial To-Do List

5 Common Mistakes to Avoid with Medicare

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