Weekly Update: May 8th

Dear Friends,

Do you ever wonder if having a financial plan is necessary when you have plenty of money? Some wealthy investors think that way, but in reality, having a financial plan is crucial. Here are some key points to keep in mind:

1. Medical and long-term-care costs take their toll: Even if you have enough money now, you may face unforeseen medical or long-term-care expenses in the future. According to JPMorgan, the average amount an individual needs to have saved by age 65 to pay for medical expenses is $240,000. Plus, if you live a longer life, you may face additional care costs, which can be financially devastating. There is a 46% chance that one member of a healthy couple aged 65 will live until age 95, and that partner is expected to be a woman 31% of the time.

2. Taxes will always be an issue: The more money you have, the more taxes will be an issue. If you have more than $3-$5 million in investable assets, you may not worry about “what-ifs,” but you will always need to worry about taxes. Proper tax planning can save you millions of dollars over your lifetime. A financial advisor can help you understand tax risks in retirement, such as tax rates increasing, expiration of the TCJA, the widow penalty, and the overall challenges of estate planning. They can also help you set up dynamic tax planning, which will leave the surviving partner in a better position and save millions of dollars for your heirs. Dynamic tax planning is an ongoing process, and your advisor will review your situation at least once a year, making course corrections along the way.

3. How to think about tax planning: Many people think about tax planning in a limited way, focusing only on the current year. However, by taking such a simplistic and one-dimensional approach, you are missing the bigger picture. Lifetime tax planning is important to pay taxes at somewhat even tax rates year over year, so there are no spikes in a year when paying taxes. Your financial advisor can help you prepare a plan that looks at the tax rates for all future years and compares those projected rates with current rates. If future rates are due to be higher (and they will likely be), then income should be moved forward when rates are lower in the form of Roth conversions or IRA distributions.

It’s important to have a financial plan in place to safeguard and grow your wealth. You never know when you may encounter unexpected medical or long-term-care expenses, and taxes will always be a concern. At Taylor Financial, we can assist you in establishing dynamic tax planning and develop a plan that takes into account tax rates for future years. This approach can help you maintain consistent tax rates every year and avoid sudden spikes in tax payments. By working with us, you can gain a better understanding of the broader tax planning picture and potentially save millions of dollars over your lifetime.

As always, please reach out with any questions.


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