A Different Approach to Year-End Planning

Jeff Vistica
September 9, 2021

Don’t get me wrong.  I’m in favor of year-end planning.

Every year, I encourage our clients to take stock of their financial situation.  It’s especially important to focus on activities that are time sensitive.  Here are some of the more significant ones.

Year-end checklist

Have you maximized your traditional and Roth IRA contributions?

  • Have you considered the pros and cons of converting your retirement funds from pre-tax (traditional IRA, 401[k]) to a Roth account?
  • If your employer matches your retirement contributions, have you contributed the minimum necessary to receive the maximum matching contribution?
  • Have you reviewed or updated your estate plans and drafted or updated a letter of care for your loved one?  Have you discussed any tax savings or planning opportunities that may be available for you or your loved one? 
  • Has your personal situation changed, caused by disability, the death of a loved one or a divorce?  If so, you should update your beneficiaries and your estate plan.
  • Be sure you are in compliance with the required minimum distribution rules that may apply to your pre-tax retirement accounts.  These rules were suspended in 2020 by the CARES act.  The RMD rules were changed in the SECURE Act, adding to the complexity of calculating the correct RMD.  If you reached age 70.5 on or prior to December 31, 2019, the pre-SECURE Act rules apply to you.  If you didn’t reach age 70.5 until January 1, 2020 or later, the SECURE Act rules are applicable and your RMD doesn’t kick in until you are age 72.
  • Have you set up a flexible savings account?  If so, you need to spend this money on medical or dental expenses by the end of the year.
  • Have you considered donating to a charity?  Doing so before the end of the calendar year can provide tax benefits.
  • How long has it been since you reviewed your insurance policies?  Do you have enough life insurance?  What about your home and automobile policies?  Do you need an umbrella liability policy?

This list isn’t all-inclusive, but it’s a good start.

Why we procrastinate

In my experience, while most agree that year-end financial planning is a good idea, few will do it.  

Are those of us who recommend it year after year guilty of violating Einstein’s definition of insanity? Insanity is doing the same thing over and over and expecting different results.

Why are we so resistant to doing something that’s clearly in our best interest?

According to Kamran Akbarzadeh, PhD, Founder of the Dream Achievers Academy, our reluctance to plan is a combination of being reactive, disorganized, having poor self-discipline, being inclined to procrastinate, lack of knowledge, not seeing the benefit of planning and impatience.

There are many psychological reasons why we procrastinate.  They include anxiety, fear of failure, and exhaustion.  We also are more inclined to defer tasks when the goals seem abstract and the benefits are well into the future.

Think about vague goals like “I should diet and exercise more.”  How many stick to that plan and make it a part of their daily routine?

A different approach

Here’s a surprisingly simple resolution, that may have little or no cost associated with it, and offers a high success rate.

If you are using a financial advisor, and your fee is based on a percentage of your assets under management, outsource end-of-year planning to your advisor.  Set up a time to meet (virtually and in person).  The agenda will be to review a checklist of items that must be accomplished by the end of the year.

Prior to the meeting, send your advisor your list, and encourage additions or deletions.

If you don’t use an advisor, ask your accounting firm if they would help you at an hourly rate.

Just because you have the ability to do year-end planning yourself doesn’t mean it’s the highest and best use of your time, especially if you know you’re too busy or otherwise disinclined to actually do it.

Shift the goal from “I must find the time to do year-end planning” to “I’m going to put together a team to ensure my year-end planning gets done.”

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