BOSTON (CBS) – Life is full of them! Barriers to your financial success. Stock market downturns, job loss, illness, disability, divorce, a death, a boomerang kid.
Those are certainly some of the obstacles you may face as you live life. And you’ll never be able to plan for all of them, but having a financial plan, proper insurance, and some savings for an emergency will help you manage anything that comes your way.
There are two other obstacles we will encounter; taxes and inflation. So Step 4 of your financial plan is to prepare for these now and in retirement.
Taxes are fluid. Always changing depending on what the White House and Congress want to do with the economy. Most tax changes come in December.
Tax planning tips:
- Keep good records
- Understand the tax laws and be aware of changes. The IRS is not going to send you an e-mail alert when things change.
- Use your retirement plans where you can contribute money pre-tax and have it grow tax-deferred.
- Use a 529 college savings plan for the money grows tax-deferred and is tax free.
No matter how hard the Federal Reserve Bank tries inflation will always be around. Last year it clocked in at 1.7% and so far this year it’s at 2%. All in all not too bad.
Inflation has averaged 3% over the last 75 years. College costs though are increasing at an average of 6%, medical expenses increased 10%.
You can ask for a raise to cover the increased cost of living but that may not work out very well. Social Security does have an inflation component as does some pensions.
You want your investments to earn more than the current rate of inflation and more than your tax bracket to keep pace. And you will probably need some stocks in your portfolio for over the long term stocks historically have beaten bonds and savings account to keep up with inflation.