Year-end planning for retirees

Published on November 1, 2023 | 4 min read | LPL Financial

As we approach the last quarter of each year, it is a good time to plan for the next one. Year-end planning is especially important for existing retirees and those hoping to retire in the next few years. There are tax and income strategies you might consider regarding your financial assets. Here are three steps you may take when planning the end of the tax year and preparing for the next one.

Consider Tax Loss Harvesting

Suppose you hold equities, with unrealized losses, in an account subject to tax. In that case, you may be able to sell these equities and harvest the tax loss to balance out any realized gains made from other stocks. Harvesting only works when the procedure is completed within a single tax year.

For example, if you are sitting on a loss in one stock, you may sell it and also sell a better-performing stock with the same amount in long-term gains without triggering a tax event. This technique may lower your tax liability by using these two assets to offset each other instead of just paying taxes on the one with a gain.

Be aware of the wash-sale rule that prevents the deduction of certain capital losses from an investor’s capital gains. The wash-sale rule applies when an investor sells equities at a loss and within 30 days before or after the sale date, bought or buys another equity that is substantially the same. A wash-sale occurs if a person’s spouse or a substantially controlled company buys an equivalent security.³

After enough time passes, you may avoid the wash sale rule. Then, you may buy back into the lower-performing stock if you like.² Unless that stock had a massive recovery during the time that you did not own it; you may be able to enjoy any long-term appreciation in its future value by starting over again at a lower cost basis.

Rebalance Your Asset Allocation

In retirement, it may be helpful to review both your risk tolerance and your asset allocation. As some assets increase in value while others remain stagnant or drop, your actual asset allocation may begin to stray from the goals for your portfolio. This circumstance may require some rebalancing, such as selling overperforming funds and buying back underperforming ones. Also, evaluate the future of these sectors with your investments to see whether other investments may be a better fit for your needs.

Update Your Income, Health Care, and Emergency Expense Plans

A low-stress retirement may hinge on having access to a stable source of income, such as an annuity, a pension, or rental or other passive income. Without this, you may be at risk of major market fluctuations occurring just when you need to withdraw some cash. The end of the tax year may be a great time to revisit your income plan for the next year. Consider whether to set aside additional funds for healthcare-related expenses and evaluate how you would pay for an emergency. By having a plan in hand, you may be able to weather whatever the next year may bring.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Asset allocation does not ensure a profit or protect against a loss.

Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

¹ https://www.morningstar.com/articles/1045559/q2-2021-market-performance-in-7-charts
² https://www.forbes.com/advisor/investing/tax-loss-harvesting/#
³ https://www.investopedia.com/terms/w/washsalerule.asp

This article was prepared by WriterAccess.

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