Overlooked Financial Planning Tips

Financial planning advice isn't always unbiased. Some financial planners receive compensation for selling specific products, and may have more sales training than financial expertise. This lack of background can lead to crucial information being overlooked while making investment decisions. Here are nine actions that are often ignored by financial advisors.

Consider Opening an HSA Account Alongside Your IRA

An HSA, or health savings account, works well with a high deductible insurance policy. By funding your HSA annually alongside your IRA, you can benefit from tax-deferred contributions and tax-free withdrawals for medical expenses, which are inevitable in retirement. Unlike IRA withdrawals that are taxed, HSA withdrawals are tax-free, making it a smart investment move.

Opt for Pension Annuity Payments Over Lump Sum

Creating a simple spreadsheet can help you decide between taking your pension as an annuity or a lump sum. An annuity payment may provide a safer, lifelong income that a lump sum cannot guarantee. Analyze the potential outcomes based on your pension choices, age, and marital status to make an informed decision rather than following a one-size-fits-all rule.

Reevaluate Roth IRAs

Roth IRAs offer numerous advantages, such as tax-free growth and the flexibility to withdraw contributions penalty-free. Roth distributions do not impact other tax obligations, making them an excellent investment option. Check if you're eligible to contribute to a Roth IRA and explore a Roth 401(k) if offered by your employer.

Utilize Index Funds

Look for mutual funds with low fees to ensure better performance. Index funds typically have minimal fees and can provide similar investment baskets at a lower cost compared to high fee counterparts. Why pay more when you can own the same assets for less?

Review Your Life Insurance Policy

Life insurance may not be necessary if you and your spouse have secure retirement income. Evaluate the need for life insurance objectively, and only pay for coverage that serves a meaningful purpose in your financial planning.

Choose I Bonds Over Fixed Annuities

I bonds offer tax-deferred, inflation-adjusted interest with complete liquidity after 12 months, making them a superior choice to fixed annuities. These bonds are among the safest investments available and should not be overlooked in your financial portfolio.

Maximize Social Security Benefits

Optimizing your Social Security benefits can enhance your retirement income more effectively than investment decisions. Spend time planning your Social Security strategy to maximize your overall financial well-being.

Rethink Long-Term Stock Investments

Long-term stock investments may not always yield higher returns compared to safer alternatives over extended periods. Consider the risk and return of stocks carefully, as they may not necessarily outperform less risky options in the long run.

Optimize Tax Efficiency in Your Investments

Ensure your investment allocations are tax-efficient by considering all your accounts holistically. Distributing bonds in your tax-deferred accounts and growth investments in non-retirement accounts can help minimize tax liabilities and maximize your overall investment strategy.