Investment-related fear can manifest itself in a few different ways:

• Fear of loss – Some investors may emphasize avoiding losses more than achieving gains. Consequently, they might build portfolios they consider very low in risk, possibly containing a high percentage of certificates of deposit (CDs) and U.S. Treasury securities. Yet, a highly conservative approach carries its own risk — the risk of not achieving enough growth to stay ahead of inflation, much less meet long-term goals such as a comfortable retirement. To reach these goals, you’ll want to construct a diversified portfolio containing different types of assets and investments — each of which may perform differently at different times. Your objective shouldn’t be to avoid all risk — which is impossible — but to create an investment strategy that accommodates your personal risk tolerance and time horizon.
• Fear of missing out – You’re probably familiar with the term “herd mentality” — the idea that people will follow the lead of others for fear of missing out on something. This behavior is responsible for fads or the sudden emergence of “hot” products, and it’s also relevant to investing. In fact, herd mentality may contribute to sharp jumps in the financial markets as investors drive up prices by buying stocks to avoid being left behind. And the same may be true in reverse — when the market starts dropping, skittish investors may accelerate the decline by selling stocks so they, too, can get out before it’s too late. Buying or selling investments should be considered as needed to help advance your long-term financial strategy — not in response to what others are doing.
• Fear of the unknown – Some investors fall victim to “familiarity bias” — the tendency to invest only in what they know, such as local or domestic companies. But this behavior can lead to under-diversified portfolios. If your portfolio is dominated by just a few investments, and these investments are fairly similar to each other, you could experience some losses when the inevitable market downturn occurs. To help reduce the impact of market volatility, it’s a good idea to spread your investment dollars across large and small companies in a range of industries and geographical regions. And that’s just on the equities side — it’s also wise to consider further diversifying your portfolio by owning bonds and government securities. (Keep in mind, though, that diversification can’t guarantee profits or protect against all losses.)
• Fear of admitting failure – Some individuals don’t like to admit when they’ve been wrong about something, and they may continue the same failed activities, hoping for eventual success. This behavior can be costly in the investment arena. Sometimes, a particular investment, or even an investment strategy, just doesn’t work out, but an investor is determined to stick with it — even if it ultimately means considerable financial loss. Don’t let his happen to you — if it becomes apparent you need to change your investment approach, move on to something better.

Fear can hold us back in many walks of life — but don’t let it keep you from making appropriate investment moves.

As you may know, long-term care covers a variety of services, ranging from occasional visits from a home health aide to full-time residency in a nursing home.

But while these types of care may vary in duration and intensity, they all have one thing in common — they’re expensive. Genworth, an insurance company, reports these median annual costs:

• Over $100,000 for a private room in a nursing home
• Over $60,000 for the services of a home health aide

Furthermore, Medicare typically pays very few of these expenses, which means the burden of payment will likely fall on you — or, even worse, on your adult children if you can’t afford the care you need.

Of course, you could hope that you will avoid these costs simply by not requiring any type of assistance — but the odds aren’t necessarily in your favor. In fact, someone turning 65 today has an almost 70% chance of needing some type of long-term care services in their remaining years, according to the U.S. Department of Health & Human Services.

So, how can you protect yourself from the potentially enormous costs of long-term care?

You could decide that you’ll pay out of pocket — if so, you’ll need to incorporate into your retirement budget a reasonable estimate of potential long-term care costs, and you may need to make some significant changes to your saving and investment plans. And the earlier you begin, the better.

Your other option is to purchase some form of long-term care insurance. Essentially, three types of coverage are available:

• Traditional long-term care insurance – A traditional long-term care policy covers long-term care expenses in your home or at a nursing facility. But policies will differ in terms of what services are covered and how benefits are paid. And you may also be able to choose whether you want inflation protection. Also, with some policies, you can deduct the premiums from your state and federal taxes. (Your tax advisor can evaluate a policy you’re considering for potential tax benefits.)
• Hybrid long-term care insurance – In addition to providing coverage for home health care or a nursing home stay, a hybrid long-term care policy also offers a death benefit, so if you never need long-term care, your family could benefit from the policy’s proceeds.
• Life insurance with a long-term care rider – You can find a life insurance policy that lets you add long-term care coverage through a “rider,” or optional add-on. With this type of policy, you can use some of the death benefit to pay for your long-term care needs.

Which policy is best for you? There’s no one right answer for everyone.

A financial professional can help you evaluate all your options within the context of your overall investment and protection strategies.

But keep in mind that all long-term care policies tend to get more expensive as you get older, so if you’re considering this type of coverage, you may want to get started sooner rather than later.

The premium surcharge — known as the income related monthly adjustment amount, or IRMAA — is assessed on premiums for Medicare Parts B and D, and generally is based on an individual’s modified adjusted gross income (MAGI) of two years ago. So, the IRMAA for 2023 would be based on one’s MAGI from 2021.

For someone who’s married and files taxes jointly, and whose MAGI for 2021 was $194,000 or less, the Part B premium for 2023 will be $164.90 per month, and the Part D premium will be whatever amount is charged by their Medicare plan.

But if their 2021 MAGI was between $194,000 and $246,000, they’ll pay $230.80 (a surcharge of $65.90) for Part B and an additional $12.20 for Part D. And the IRMAA rises at different income levels, reaching a maximum of $560.50 (a surcharge of $395.60) for Part B and an additional $76.40 for Part D for a MAGI of $750,000 or more

If you’re unprepared for the IRMAA, it can be an unpleasant surprise. So, if you’ve still got a few years until you enroll in Medicare, you may want to look for ways to control your MAGI and possibly limit the surcharge.

Here are a few suggestions:
• Contribute to a Health Savings Account (HSA). If you have access to a Health Savings Account (HSA), your contributions will reduce your taxable income, helping you on the IRMAA issue. Furthermore, any investment growth within your HSA is tax free, as are withdrawals for qualified medical expenses, which can include Medicare premiums, deductibles and copays.
• Contribute to a Roth IRA. Roth IRA withdrawals are tax free, provided you don’t start taking them until you’re 59½ and you’ve had your account at least five years. These tax-free withdrawals can enable you to avoid taking taxable withdrawals from other accounts, which may help you avoid an increase in your IRMAA.
• Consider a Roth IRA conversion. You could convert some, or perhaps all, the assets of a traditional IRA into a Roth IRA. But you’ll need to consider the impact of taxes — any deductible contributions to your traditional IRA and the earnings generated by these contributions will be fully taxable the year of the conversion, so you’ll want to have funds outside your IRA available to pay these taxes. Also, timing is important — to be on the safe side, you might want to complete the Roth conversion three or more years before you enroll in Medicare, so the conversion and the likely increase in your MAGI won’t increase the IRMAA.
• Manage your withdrawal rate – Taking large withdrawals from your retirement accounts can bump up your MAGI bracket and your IRMAA. So, as you near retirement, you’ll want to establish a sustainable withdrawal rate — one that provides you the income you need but without going overboard.
While these moves could potentially help you control the Medicare surcharge, they still must make sense for your overall financial strategy. It’s obviously desirable to keep the surcharge as low as you can — but it’s even more important to take the steps necessary to reach your financial goals.

Before we delve into that question, let’s consider the rules. In 2023, you can contribute the full amount to a Roth IRA — $6,500, or $7,500 if you’re 50 or older — if your modified adjusted gross income is less than $138,000 (if you’re single) or $218,000 (if you’re married and filing jointly). If you earn more than these amounts, the amount you can contribute decreases until it’s phased out completely if your income exceeds $153,000 (single) or $228,000 (married, filing jointly).

A Roth IRA is attractive because its earnings and withdrawals are tax free, provided you’ve had the account at least five years and you don’t start taking money out until you’re 59½.

Furthermore, when you own a Roth IRA, you’re not required to take withdrawals from it when you turn 72, as you would with a traditional IRA, so you’ll have more flexibility in your retirement income planning and your money will have the chance to potentially keep growing. But given your income, how can you contribute to a Roth?

You may want to consider what’s known as a “backdoor Roth” strategy. Essentially, this involves contributing money to a new traditional IRA, or taking money from an existing one, and then converting the funds to a Roth IRA. But while this backdoor strategy sounds simple, it involves some serious considerations.

Specifically, you need to evaluate how much of your traditional IRA is in pretax or after-tax dollars. When you contribute pretax dollars to a traditional IRA, your contributions lower your annual taxable income.

However, if your income is high enough to disqualify you from contributing directly to a Roth IRA, you may also earn too much to make deductible (pretax) contributions to a traditional IRA.

Consequently, you might have contributed after-tax dollars to your traditional IRA, on top of the pretax ones you may have put in when your income was lower. (Earnings on after-tax contributions will be treated as pretax amounts.)

In any case, if you convert pretax assets from your traditional IRA to a Roth IRA, the amount converted will be fully taxable in the year of the conversion. So, if you were to convert a large amount of these assets, you could face a hefty tax bill. And since you probably don’t want to take funds from the converted IRA itself to pay for the taxes, you’d need another source of funding, possibly from your savings and other investments.

Ultimately, then, a backdoor Roth IRA strategy may make the most sense if you have few or no pretax assets in any traditional IRA, including a SEP-IRA and a SIMPLE IRA. If you do have a sizable amount of pretax dollars in your IRA, and you’d still like to convert it to a Roth IRA, you could consider spreading the conversion over a period of years, potentially diluting your tax burden.

Consult with your tax advisor when considering a backdoor Roth strategy. But if it’s appropriate for your situation, it could play a role in your financial strategy, so give it some thought.

In regard to the first question, many experts predict that inflation will cool off this year, though there are no guarantees. The high inflation of last year is thought to have been caused by some unusual factors, such as a spike in the demand for consumer goods as the world came out of the COVID-19 pandemic, which led to supply chain issues.

Also, the war in Ukraine drove up oil prices, increasing the cost of manufacturing and shipping and driving up the price of wheat and other commodities.

In any case, last year reminded us that inflation needs to be reckoned with as you work toward your financial goals. But how you respond to inflation will depend somewhat on your stage of life. So, here are some suggestions to consider:

If you’re still working …
• Contribute more to your retirement plans. If you can afford to put more money away in your IRA and 401(k), you may want to do so. The more resources you’ll eventually have available in retirement, the better protected you are against the rising cost of living.
• Adjust your portfolio objectives with your financial professional. Using tools such as “hypothetical” illustrations, a financial professional can show you some different paths you might take with your investments, given different rates of inflation. So, for example, if you feel that inflation may be higher for a longer period than you once thought, you could request a hypothetical showing how you might need to adjust your investment mix to achieve your long-term goals, given your risk tolerance and time horizon.
If you’re already retired …
• Consider part-time work or consulting. Once you retire from your career, it doesn’t mean you can never do any paid work again. If you’ve accumulated years of experience and expertise, you could use your skills as a consultant. Also, many part-time jobs are available for retirees. With the added income from employment, you may be able to delay taking withdrawals from your retirement accounts and other investments, possibly extending their longevity. (Once you turn 72, though, you will need to begin taking money from your 401(k) and traditional IRA.)
• Delay taking Social Security. You can begin taking Social Security when you’re 62, but your monthly checks will be substantially bigger if you wait until your full retirement age, which will likely be between 66 and 67. (You could even wait until 70, at which point your monthly benefits will max out.) Of course, the ability to delay taking Social Security depends on whether you can afford it, but it may be possible if you work longer than you once planned or if you work part time in retirement. But even if you do need to take Social Security before your full retirement age, your payments will be adjusted annually for inflation — in fact, for 2023, benefit checks will rise 8.7% over 2022.

We’ll always have to deal with some level of inflation — so it’s a good idea to be prepared.

And how will your renewed employment affect your financial outlook?

For starters, though, what reasons might motivate you to go back to work? For many people, the primary cause has been inflation, which has presented a huge challenge to retirees living on a fixed income. In addition, the volatile financial market of 2022 caused many people’s investment portfolios to decline in value — a real problem for retirees who needed to start selling investments to supplement their income.

But non-financial factors could also be driving you to unretire. Like other retirees, you may miss the chance to use your work experience to engage with the world, and you may miss the social interactions as well.

In any case, if you do decide to rejoin the working world in some fashion, you may have several options. For example, if you enjoyed the work you did for your former employer, you might want to see if you could go back on a part-time basis. Or you could use your skills to join the “gig” economy by doing some consulting or freelance work in your former industry. You might also consider going to work for a nonprofit organization, as many of these groups lost employees during the height of the COVID-19 pandemic and are now facing labor shortages.

Going back to work, even part time, can improve your cash flow, which helps cover the cost of regular expenses. Furthermore, the added income can possibly help you delay or reduce withdrawals from your investment accounts.

And it’s important to increase the longevity of these accounts considering you may spend two, or even three, decades in retirement. (Once you turn 72, however, you will have to start withdrawing certain amounts from your 401(k) and traditional IRA.)

But your earnings can affect another source of your retirement income — your Social Security benefits.

If you return to work before your “full” retirement age, which is likely between 66 and 67, the Social Security earnings limit in 2023 is $21,240. For each $2 earned over that amount, Social Security will deduct $1 from benefits. If you reach your full retirement age in 2023, the earnings limit is $56,520; Social Security will deduct $1 from your benefits for each $3 earned over this amount until the month you turn your full retirement age.

But in all future years after you’ve reached your full retirement age, you can earn as much as you want without losing any benefits. Social Security will then recalculate your payments to give you credit for the months your benefits were reduced or withheld due to your excess earnings. Be aware, though, that your earned income can potentially result in higher taxes on your Social Security benefits at any age.

Returning to work can be rewarding, both financially and emotionally. And you may get more out of the experience when you’re aware of the issues involved.

Here are a few to consider:

• Don’t let inflation derail your investment strategy. As you know, inflation was the big financial story of 2022, hitting a 40-year high. And while it may moderate somewhat this year, it will likely still be higher than what we experienced the past decade or so. Even so, it’s a good idea to try not to let today’s inflation harm your investment strategy for the future. That happened last year: More than half of American workers either reduced their contributions to their 401(k)s and other retirement plans or stopped contributing completely during the third quarter of 2022, according to a survey by Allianz Life Insurance of North America. Of course, focusing on your cash flow needs today is certainly understandable, but are there other ways you can free up some money, such as possibly lowering your spending, so you can continue contributing to your retirement accounts? It’s worth the effort because you could spend two or three decades as a retiree.
• Control your debts. Inflation can also be a factor in debt management. For example, your credit card debt could rise due to rising prices and variable credit card interest rate increases. By paying your bill each month, you can avoid the effects of rising interest rates. If you do carry a balance, you might be able to transfer it to a lower-rate card, depending on your credit score. And if you’re carrying multiple credit cards, you might benefit by getting a fixed-rate debt consolidation loan. In any case, the lower your debt payments, the more you can invest for your long-term goals.
• Review your investment portfolio. At least once a year, you should review your investment portfolio to determine if it’s still appropriate for your goals, risk tolerance and time horizon. But be careful not to make changes just because you feel your recent performance is not what it should have been. When the financial markets are down, as was the case for most of 2022, even quality investments, such as stocks of companies with solid business fundamentals and strong prospects, can see declines in value. But if these investments are still suitable for your portfolio, you may want to keep them.
• Prepare for the unexpected. If you encountered a large unexpected expense, such as the need for a major home repair, how would you pay for it? If you didn’t have the money readily available, you might be forced to dip into your long-term investments or retirement accounts. To prevent this, you should build an emergency fund containing three to six months’ worth of living expenses — or a year’s worth, if you’re retired — with the money kept in a low-risk, liquid account.

These resolutions can be useful — so try to put them to work in 2023.

You’ve worked hard to accumulate them, and you’ll certainly need some of them to support your retirement, but what about the rest? What’s the best way to pass them on to your loved ones?

There’s no single path for everyone to follow. But you might consider establishing a trust, which offers some key benefits. For example, your estate can avoid the time-consuming, and highly public, process of probate. Plus, you can be highly specific about how your assets will be distributed.

To establish a trust, you will need to work with a qualified estate-planning attorney.

And while you’ll discuss many issues, here are three key questions that will certainly need to be addressed: Who will serve as trustee of the trust?

As the grantor, or creator, of your trust, you will pick the trustee – the individual or corporate entity that will manage the trust’s assets and carry out the purpose of the trust. You could choose a trusted loved one, but this individual might not have the knowledge or experience to manage the responsibilities of a trustee. As an alternative, you could choose a corporate fiduciary, such as a bank or trust company. These entities are typically regulated by outside agencies and provide significant public matter expertise. Of course, they charge for their services and often have account minimums.

When are distributions made? As the grantor, you can choose when assets will be distributed to the beneficiaries you’ve named. You could decide to keep the assets in the trust until a beneficiary reaches the age of majority; note that the age of majority is not the same in all states. Or you could choose to “phase in” the distributions at particular ages – e.g., 30, 35, 40 – or after a certain number of years. You could even hold assets in the trust for the lifetimes of the beneficiaries. These types of choices will depend on several factors, such as your feelings for how responsible a beneficiary might be in managing money.

For what purposes can the trust assets be used? In addition to choosing when your trust should make distributions, you can decide how these assets should be used. You could designate some broad categories, such as health, education, maintenance and support. A beneficiary’s request for distributions in these areas is usually granted. But you could also structure the trust to provide mandatory income, perhaps once a year, or include a provision that provides incentives, such as distributing certain amounts of money once the beneficiary has achieved a milestone, such as finishing a degree or purchasing a first home.

One final note: Although you clearly have great control over what your trust can accomplish, its effectiveness will also depend, to a great extent, on its asset level. With this in mind, you’ll want to pay close attention to your investment decisions throughout your life and your withdrawal strategy during retirement. The better your choices in these areas, the more options you’ll have with your trust – and the greater the potential benefits for your beneficiaries.

What are these challenges – and what types of protection can be used to defend against them? Consider the following:

Challenge #1: Protecting your ability to reach your goals – To achieve your long-term goals, such as a comfortable retirement, you’ll need to build adequate financial resources.

And that means you’ll need to create an investment portfolio that’s suitable for your objectives, risk tolerance and time horizon. And you’ll need to keep your long-term goals in mind when adjusting your portfolio during times of volatility.

Challenge #2: Protecting your family’s future if you’re not around – Hopefully, you will live a long life and always be around to support your family.

But the future is not ours to see – and if something were to happen to you, how would your family cope? Their chances could be much better if you have adequate life insurance. Proper coverage could help pay off your mortgage, pay for your children’s higher education and allow your family to continue its lifestyle.

Challenge #3: Protecting your income should you become temporarily disabled – If you were to become ill or temporarily disabled and could not work for a while, the disruption in your income could jeopardize your family’s living situation, or, at the least, lead to an inability to pay bills in a timely fashion.

To protect against this threat, you may want to consider adding disability insurance. Your employer may offer a short-term disability policy as an employee benefit, but it may be insufficient, either in duration or in amount of coverage, so you might want to look at a private policy.

Challenge #4: Protecting your long-term investments from short-term needs – Life is full of unexpected expenses – a major car repair, a new furnace, a large bill from the dentist, and so on. If you did not have the money available to deal with these costs, you might be forced to dip into your long-term investments, such as your IRA or 401(k).

Taking money from these accounts earlier than you intended could incur taxes and penalties, and, even more importantly, could reduce the amount of money you have available for retirement. To help protect these investments from short-term needs for cash, try to build an emergency fund containing three to six months’ worth of living expenses, with the money kept in cash or a liquid account.

Challenge #5: Protecting your financial independence – You would probably do all you could to avoid ever becoming a burden to your grown children – which is why it’s so important to maintain your financial independence throughout your life. One potential threat to this independence is the need for some type of long-term care, such as an extended nursing home stay, which can be extremely expensive.

A financial professional can suggest protection strategies to help you prepared for these types of costs.
It can be challenging to keep your financial strategy intact – so do whatever it takes to protect it.