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Change is Constant with Financial Planning, But We’ve Got You Covered Thumbnail

Change is Constant with Financial Planning, But We’ve Got You Covered

As my team at Keen Wealth Advisors starts looking ahead to 2022, there are things we know, and things we don't know.

On the one hand, year-end announcements from the Social Security Administration, the IRS, and the Centers for Medicare and Medicaid Services have allowed us to start making some more detailed projections as we prepare for the year ahead.

But with a new COVID-19 variant circulating, inflation on the rise, and legislation still under debate in Washington that could affect taxes and retirement accounts, we have to maintain flexibility as well. As we discuss on today’s show, history tells us that financial planning requires a delicate balance between making the most out of the present and laying the groundwork for success in the future.

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A brief history of the IRA

For a good example of just how much things can change during the course of a person’s retirement planning, take a look at everything that’s happened to IRAs:

1974: Congress introduced individual retirement accounts as part of the Employee Retirement Income Security Act (ERISA). Taxpayers could contribute up to 15% of their annual income or $1,500 per year, whichever was lower.

1981: The Economic Recovery Tax Act allowed all working taxpayers under the age of 70 to contribute to an IRA regardless of their coverage under a qualified plan. This law also raised annual contribution limits to $2,000 and added a $250 annual contribution on behalf of a nonworking spouse.

1986: Congress phased out deductions for IRA contributions among workers who also had employer-based retirement plans and introduced income limits on who could contribute to an IRA.

1997: The Taxpayer Relief Act introduced the Roth IRA, named after Senator William Roth of Delaware. The Roth IRA allows folks to make after-tax contributions that are not taxed upon withdrawal and has been a popular retirement tool ever since.

2002: Individuals over 50 are allowed to make "catch-up" contributions into their IRAs of up to $1,000 per year.

2020: The SECURE Act raised the age at which seniors have to take required minimum distributions from their retirement accounts from age 70 1/2 to 72.

That brings us to today. In 2022, individuals will be able to contribute up to $6,000 per year into their IRAs; catch-up contributions for folks over 50 are still $1,000; and, sure enough, Congress is debating more changes to IRAs, most notably closing "back door" conversions, which we discussed on a recent episode.

The key takeaway from this timeline is that while we have a tendency to get worked up about potential changes to retirement, the reality is that the applicable laws have always been in flux. One of the major advantages of working with an advisor is that we monitor these changes for you. Moreover, because we expect laws, economic conditions, and financial needs to change over time, our personalized plans are built to adjust accordingly. So, if Congress does pass some changes to IRAs or tax laws in 2022, we will be ready. 

Preparing for 2022

Speaking of change, we recently learned that monthly Medicare premiums are going to increase by $21.60 starting in January of 2022. Single filers who made more than $91,000 in 2020 and couples filing jointly who made more than $182,000 need to prepare for an additional income related monthly adjustment amount (IRMAA), which could drive your monthly premiums from $238 all the way up to $578. The Centers for Medicare and Medicaid Services will inform you by mail if you're subject to IRMAA.

The IRS also announced that the standard deduction is going up to $12,950 for single filers and $25,900 for married couples next year.

And we also know that Social Security payments will go up by 5.9% to keep pace with the consumer price index.

The start of a new year is also a good time to revisit your estate planning. In 2022, the estate plan exclusion is increasing to $12.06 million per individual ($24.12 million for a married couple). Those figures do not include the annual gift exclusion, which is going up to $16,000 next year and is not considered taxable income to the recipient.

It's a lot to keep track of!

We want everyone to be involved in their financial planning, and we try to provide a base level of education on relevant topics. But I hope that the deeper into these details we go, the clearer it becomes that an advisor can assist you in making the best decisions for you and your family.

If you have any questions about your 2022 benefits, coping with inflation, or potential changes to retirement planning, call up my team at Keen Wealth Advisors and let's schedule a financial review meeting.

About Bill

Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.

KWMG, LLC’s dba Keen Wealth Advisors (“company”) is an SEC Registered Investment Advisor located in Overland Park, KS. The company and its representatives may only conduct business in those states where registered or where excluded/exempt or from licensure. For registration information please contact the SEC or the state securities regulators for the states where the company is notice filed. A copy of the company ADV is available upon request. Advisory services are only offered to clients or prospective clients where the company and its representatives are properly licensed or exempt from licensure. No advice may be rendered by the company unless a client service agreement is in place. This information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy and is for illustrative purposes only. Clients and prospective clients must consider all relevant risk factors involved with each strategy, including costs or fees, and their own personal financial situations before trading.

The views outlined in the book, Keen on Retirement Engineering the Second Half of Your Life, are those of the author and should not be construed as individualized or personalized investment advice. Any economic and/or performance information cited is historical and not indicative of future results. Economic forecasts set forth may not develop as predicted.

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