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Crossing Three Listener Questions Off Your 2024 Financial Planning Checklist Thumbnail

Crossing Three Listener Questions Off Your 2024 Financial Planning Checklist

When we fall behind on our holiday shopping lists, there are usually some last-minute deals and expedited shipping options that can help us catch up. But if you fall too far behind on your annual financial planning checklist, you might miss out on some important rule changes or time-sensitive strategies that could impact your retirement next year.

Based on the questions we've been fielding lately from Keen on Retirement listeners and readers, I'm glad that so many folks are making time during the holiday hustle and bustle to think about some important issues and get a jump on their 2024 financial planning. On today's show, we discuss popular questions about next year's tax brackets, a controversial video about retirement withdrawals that's been making the rounds on social media, and how seniors should be planning for long-term care.

1. "Why are tax rates increasing by 5.4% next year?"

They're not.

When the IRS announces its annual changes to tax brackets and the standard deduction, some folks think that means tax rates are going up. What's actually changing are the income thresholds in each of the brackets, which adjust to increases in the cost of living.

Here's how the 2024 brackets break down:

37% for individual single taxpayers with incomes greater than $609,350 ($731,200 for married couples filing jointly).

35% for incomes over $243,725 ($487,450 for married couples filing jointly)

32% for incomes over $191,950 ($383,900 for married couples filing jointly)

24% for incomes over $100,525 ($201,050 for married couples filing jointly)

22% for incomes over $47,150 ($94,300 for married couples filing jointly)

12% for incomes over $11,600 ($23,200 for married couples filing jointly)

The standard deduction for 2024 is also going up to $14,600 for individuals and $29,200 for married couples filing jointly.

2. "I saw a YouTube clip of Dave Ramsey calling the 4% Rule "stupid" and arguing that retirees who follow his preferred strategies can safely spend 8% per year. Should I rethink my investing and withdrawal plans?" 

A quick refresher: The 4% Rule is a back-of-the-napkin calculation that can give retirees a very general idea of how much they can withdraw from their retirement accounts and spend every year without exhausting their money.

In several videos you might have seen recently, Dave Ramsey suggests that investors should have more of their money in stock mutual funds, which he says, historically, have returned around 12% per year. And if you're earning 12% per year, there's no reason to limit your spending to only 4%. Heck, following that logic, why not spend 9% or 10%?

Because while these "rules" and online arguments get views and clicks, the markets simply don't work this way. Yes, in the long run, historical market averages have yielded positive returns, although I’m not sure where Ramsey is coming up with a fund that produces a consistent 12% return year in and year out. In fact, no investor in the equity markets receives a consistent, linear rate of return every single year. For those withdrawing from their portfolios for living expenses, we call this the “order of return risk.” In my experience, recommending an 8% annual withdrawal level, especially for someone earlier in retirement, could make running out of money a substantial risk.

These "rules" also overlook the fact that your life doesn't progress in a linear fashion either. If you were following the 4% rule, what happens if you need to spend 6% one year because, while your spouse is recovering from a serious injury, your roof starts leaking, and you still want to contribute to your grandkid's first year at college? Are you going to "stick to the rules" and let water drip on your head until next year? Or are you going to work with a financial planner who can help you assess your options, recalibrate, and move forward?

Dave Ramsey has helped a lot of folks by popularizing some good, common-sense advice: control your spending and pay down debts. But your retirement is much more dynamic than any one rule or number.

3. "Do I need long-term care insurance?"

A more precise version of this question is, what do you want to insure against?

When most folks are thinking about buying long-term care insurance, they're worried about having to spend years in an assisted living facility or paying for in-home nursing. However, the Administration for Community Living (ACL), a division of the U.S. Department of Health and Human Services, defines long-term care as "a range of services and supports you may need to meet your personal care needs." This includes things like bathing, eating, shopping, housework, and managing your money.

So while, on average, the ACL says women will need 3.7 years of care and men will need 2.2 years, not all seniors will need to pay for long-term care. If you just need help getting around and making sure the bills are paid, you might be able to rely on family members or your neighbors. And if you do need medical services that Medicare doesn't cover, the stats say most seniors will only need to pay for two years or less. A healthcare pro and your financial advisor can help you run some numbers and determine whether it's more cost-effective to purchase long-term care insurance or use alternative strategies, such as establishing an emergency healthcare savings bucket.

Do you have other issues on your 2024 financial planning checklist? It's not too late to schedule an appointment with my team at Keen Wealth and discuss the benefits of our comprehensive planning process.

About Bill

Bill Keen is a financial advisor with nearly 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on 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 Forbes, 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.

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