2021 beginning of year retirement planning tips

While the end of the year is often busy with tax and financial planning housekeeping (e.g. Roth conversions, making sure RMDs are taken, tax loss harvesting in regular brokerage accounts, making charitable donations, etc.), the beginning of the year has some planning opportunities of its own.

Here are some things to consider as you start the year:

Estimate expenses and income - In addition to mapping out your anticipated “normal” expenses like housing, food, transportation and health insurance, also give thought to any extraordinary or large additional expenses you may have like a home renovation, special donation, new car, etc. It’s important to have an idea of what your expenses will be so you can make sure you have the money for it readily available when necessary. To the extent your Social Security, pension and/or annuity income won’t fully cover your expenses and you’ll need to withdraw money from your portfolio, you want to plan for that ahead of time to make sure the cash is available when needed.

Plan tax withholdings and/or estimated tax payments - Once you estimate your income for the year, next figure out the approximate amount of federal and state income tax you’ll owe and be sure to adjust your withholdings or make estimated tax payments throughout the year, if necessary. 

Don’t forget RMDs - If you’ll have Required Minimum Distributions (“RMDs”) to take from your accounts, be certain to actually take them. As mentioned in the “Retirement Planning News” section above, the 2020 waiver of RMDs was NOT extended into 2021. The penalty for missing an RMD is steep…50% of the amount that should have been taken but wasn’t.

Plan for major “to do” items - Be aware of any major deadlines you might have during the year. For example, when you turn 65 you need to sign up for Medicare (unless you’re still working and will continue to have qualifying health insurance through your employer). If you fail to sign up for Medicare during your initial sign-up window around your 65th birthday, you’ll have to pay a monthly penalty, FOR LIFE, when you do eventually sign up.