Essential planning for 2022

As we approach the end of the year, there’s no more important time for financial planning. It’s your last opportunity to review where you are with your 2021 goals, and it’s your best opportunity for starting off right with the new year. Most importantly, it’s a critical time to review your long-term goals to see if you’re still on track to achieve them.

Here’s a planning checklist to help with the transition from 2021 into 2022:

Review, adjust & set goals

First, consider your short-term goals; those things you want to achieve in the near term. Are you on track? If not, why not? Do your goals need to be adjusted? Are they still priorities? Do you have any new short-term goals? It’s essential to ensure your short-term goals are achievable based on their timeframe, and how much you’re allocating toward the goal.

Do the same assessment for your long-term goals and determine what adjustments, if any, you need to make to get on track. That might include adjusting your timeframe, changing your investment mix or allocating more savings toward the goal.

Rebalance your 401(k)

If you have stock accounts in your 401(k) plan, you did very well this last year. The bad news is you may have increased your risk exposure beyond your comfort level. If you allocated your money among stock and bond accounts for a lower-risk, balanced approach to investing, the stock gains might have upset the balance. For instance, if your original allocation was 60 percent stocks and 40 percent bonds, the increase in stock prices may have shifted it to 70/30 or 80/20. That’s okay as long as the stock market keeps going up, but when it goes down, which it will at some point, your account value will decline more quickly. Consider selling shares in your stock accounts to get back to your original allocation.

Review your coverages

You own insurance to protect against financial risks. But your coverages don’t always reflect your needs. For example, if you have homeowners’ insurance for a house valued at $350,000 and it is now worth more than $400,000, your policy may not have enough coverage. You also need to adjust your coverage to reflect any new purchases, such as expensive jewelry or a piece of art. Also check your liability coverage. Generally, the liability coverage available in your homeowner’s and auto insurance policies is limited. Your liability coverage should be adequate to protect all of your assets. Consider adding a personal umbrella liability policy, typically available for just a couple hundred dollars a year.

Tax planning for 2021 and 2022

There’s still time to make some moves to minimize taxes for 2021. Have you contributed the maximum allowable amount to your retirement plans? Are there any opportunities to defer income into 2022 and accelerate deductible expenses? This is the time to project your taxable income for 2022 and consider strategies to lower your tax bill next year. It’s also important to check with your tax advisor to see if any of the proposed tax changes, such as changes to the capital gains tax, will affect you. Your tax advisor can discuss strategies for how to adjust to the tax law changes if necessary.

Plan your charitable giving

The end of the year is the last opportunity to plan any charitable gifts for 2021. Consideration should be given to how you want to give — with cash donations or appreciated securities. For a more structured gifting strategy, you may want to consider a donor-advised fund, which allows you to donate funds now and decide on which charities you want to benefit later. 

Update your estate plan

Take this opportunity to update your will and other estate planning documents based on changes in your family circumstances. Check to see that your estate plan still reflects your situation and objectives.

Meet with your financial advisor

Your financial advisor is best equipped to run through this checklist with you and help guide any changes to your plan for 2022. You may be dealing with higher inflation and higher interest rates in the coming year, so it’s essential to see how well-positioned you are to deal with them. If you don’t currently have a financial advisor, consider contacting a local representative of the Alpine Bank Wealth Management team.

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