The 401k Trap

The real title of this edition is: The 401k Trap – Have a 401k Strategy.

It has become clear that there is more to saving in a 401k than…simply saving in a 401k. Last year, amidst no travel and not being able to see clients and friends face-to-face, two colleagues and I took 5 months to write an actionable guide to the critical need – due to potentially higher taxes in the future – for a strategy around 401k saving TODAY. For Everyone. The name of the paper is: The 401k Trap.

The 401k Trap: Contact me for a copy. kdebbs@msfsolutions.com

For those who are just getting started saving in a company 401k or 403b, the strategies we suggest could make a huge difference in 10 years and beyond; for those who have been saving in a 401k for 15-20 years or more, a strategy may be even more urgent.

The key reason is taxes. It is true that no one knows for sure where tax rates will be in 5-10-20 years from today. But with history as a guide and the fact that tax rates on the federal level are near all-time lows, the conclusion can be drawn that tax rates will only be higher in the intermediate- and long-term future. This state of affairs will punish those who have done the hard work of saving large balances in pre-tax 401k and IRA accounts.

Here is the Table of Contents – please ask me for a copy of the paper.

  • Oh, How Times Have Changed!
  • Longevity
  • 401k Today
  • Risk of Increased Government Spending
  • An Aging Population
  • Dirty Little Secret
  • Historic Tax Brackets
  • Surprise
  • The Earlier the Better
  • The Debt Clock
  • The Wake-Up Call
  • Bonus Checklist

Thank you for reading, stay safe and TGIF!

Hindsight is 2020

Perhaps the perfect way to “look at” 2020 – is in hindsight! Who on earth could have predicted what went down in world and market events in 2020, both bad and good? Who will ever be able to accurately predict markets? And why is this important?

Funny, there will always be those people who seriously believe and will say out loud that:

  • they knew a pandemic would strike,
  • the economy was due to come to a screeching halt,
  • they predicted the timing of the market turnaround,
  • they knew the US Fed would abruptly lower benchmark interest rates back to zero,
  • Etc., etc., etc.
The smartest of the smart recently admitted they could never have predicted the events of 2020 and how they played out in stock, bond, real estate, and commodities markets.

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Looking Ahead to What’s to Come

As we approach the end of an extremely weird and difficult year, no doubt what is on lots of people’s minds: What is to come in the months and year immediately ahead?

From an economic and financial standpoint, a great deal depends on several factors very well summed up in a recent The Wall Street Journal article.*

In order to gauge how early 2021 will look, we need to understand:

  • How bad this latest surge in coronavirus cases might get?
  • What measures people and state and local governments take and the resulting effects on spending?
  • How much relief will come from the federal government?
  • How much better things will look toward the end of 1Q 2021?
As we approach the end of an extremely weird and difficult year, no doubt what is on lots of people’s minds: What is to come in the months and year immediately ahead?

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Pickleball, Anyone?

Pickleball is quite the rage – and has been for several years. In talking with clients and friends from the cities and suburbs, in both the North and South, they all say Pickleball ROCKS! Especially now with dynamic, successful people having worked from home for nearly eleven months – missing competition, sports, and socialization – pickleball seems to “check a number of boxes”.

For those who have spent a lifetime skiing, playing golf or tennis – or who are simply looking for a new leisure pursuit – pickleball has become a legit sport.

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Caring For an Aging Friend

Back in 2017 & 2018 TGIF 2 Minutes explored “Caring For Aging Parents”. The topic and its challenges will always be timely. And there is another angle to the issue that can be equally as gut-wrenching: caring for – or caring about – an aging friend or neighbor who has little or no family available and no apparent plan for aging.

Friends are not family, but we can care about friends just as much or more.

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Thankful vs. Grateful

A good one for Thanksgiving from the Archives of TGIF 2 Minutes….

Bottom line: being Thankful and Grateful are both positive things.

Simply saying “Thank you” out loud is hard to do without smiling either inwardly or outwardly. Try it! But say, “I am grateful for X” whether it is for a person, place, or thing, and it likely brings a deeper feeling. Perhaps that is why in the science of happiness – yes, there is a whole branch of science around happiness – the concept of gratitude is central.

Thankfulness to includes being simply “conscious of benefits received” versus gratefulness which involves a deeper “[appreciation] for benefits received”.
Photo by August de Richelieu on Pexels.com

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Leap of Faith

These are trying times. Despite the strains of pandemic, home schooling, work furloughs, and entire families sitting at dining room tables on laptops… there are still BIG decisions and “leaps of faith” to be made. Namely,

  • Annual Healthcare Enrollment (deadlines looming)
  • 401k contributions by year-end amidst a year of zany cash flows
  • Kids’ high school enrollments (these have changed for lots of people)
  • College semester enrollment and tuition payments
  • Home improvements like, “Do I add a home office?”… and more.
  • Don’t even get me started on – “Do I know who my beneficiaries are?” or “When do I start taking Social Security?”

This is nuts!

Take the time to become informed in order to make proper leaps of faith where needed or to stay put where necessary.

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Scary Financial Things

Halloween can be pretty scary – but not as scary as Open Enrollment for health coverage! Dates for open enrollment typically go from November 1st to December 15th for coverage starting January 1st of the coming year. Enrolling for healthcare (Flexible Spending, Dental, Health Savings Accounts or Medicare, among others) can scare the living daylights out of even the smartest, strongest people. We are presently in or near the “Open Enrollment for Healthcare” season.

Hitting the “Enroll” button is an action that people put off, sometimes even missing the deadline.  Don’t miss the deadline. 

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2020 Year End Tax Planning Tips

As we approach the end of the weirdest year ever, nearly everyone wants 2020 to be O-V-E-R (unless you love birthdays, and your birthday is between now and December 31st).

The year-end countdown has begun, and soon it will be too late to make certain positive changes to your 2020 tax situation.  Several of these items, if addressed now, could make a big or small difference to your 2020 tax filing, AND add to your savings.

Several of these items, if addressed now, could make a big or small difference to your 2020 tax filing, AND add to your savings. Photo by Thirdman on Pexels.com

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The Biggest Winners

It is only fair that if there was an edition two weeks ago titled “Biggest Losers” there be an accompanying edition, “Biggest Winners.” Because there are A LOT of winners out there. But the financial and news media do not sell advertising talking about winners.

Here are the most obvious Winners, especially financially speaking:

Several of my clients and I painfully combed through their spending as part of the financial planning process. In most cases, these people came out with a greater awareness of who and what is most important to them.

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