Financial Planning Updates for 2023

Entering a new year provides an excellent opportunity to update your financial plan to align with your financial needs and goals for the future. It is also a good time to begin to plan for 2023 tax liabilities and explore ways to minimize these. A review of retirement contributions is also an important element in tax and future financial planning for those continuing to work.

The economy in 2023 remains challenging. Market volatility continues amidst the backdrop of the potential for recession, which are combining with global economic shifts and historically record inflation. It is readily apparent that you need to be financially prepared for the changes and challenges that may lie ahead. Increasing interest rates can create challenges for those with debt. However, it can provide opportunities for fixed investments and even cash balances (used for emergency needs) to provide returns.

Here are some updates to consider when preparing financially for 2023.  

Income Tax Updates

Taxes can represent a major portion of your expenses. Careful planning can help to reduce this liability. As part of the financial planning process, we incorporate your 2022 tax return into planning software that is used to identify potential areas where strategic planning could be useful to reduce your liability in 2023.  The latest income tax rates for 2023 include some indexing of brackets:

For those that do not itemize deductions, the standard deduction for 2023 also has increased:


Retirement Contribution Changes

Retirement accounts are an integral part of long-term financial planning. Each year the IRS provides updates to the contribution limits. For individuals with earned income in 2023, you can contribute up to $22,500 in a 401(k), 403(b), 457 or Thrift Savings Plan. The catch-up contribution for these plans has also been increased to $7,500 for those over the age of 50. IRA contribution limits have been increased to $6,500, however, the catch-up contribution limit for IRAs remains at $1,000 for 2023. SIMPLE retirement plan contribution limits have increased to $15,500 with a higher catch-up contribution of $3,500 now allowed.

We encourage our working clients to defer the maximum allowed each year to the retirement plans for which they are eligible to contribute.  Future financial security and peace of mind will be improved by annual deferrals that increase your retirement nest egg.

Emergency Fund Management 

A foundational element of every financial plan is an emergency fund. With the current economic horizon potentially including a recession in 2023, the need for cash or liquidity could be of increased importance. How much you keep in a fund of this type can vary. However, consensus recommendations vary from 3 to 8 months living expenses. 

For some investors, this can represent a sizable amount of funds. Until the recent rate hikes in 2022, interest rates were at historical lows and returns on the most commonly used receptacles for these funds–savings and money market accounts—were very near to zero. This has changed following the Feds tightening policy (which is continuing into 2023). There are now options available that provide liquidity and yields over 4% on these funds. It is important that you explore the income options available to capitalize on the current interest rate market while maintaining access to emergency funds. Your advisor can provide you with the most recent information regarding options available for emergency funds.

As advisors, we are here to work alongside you to develop a comprehensive financial plan and to develop and implement investment strategies that will enhance the achievement of your business and personal goals. If you have not taken advantage of our financial planning services or have not updated your plan recently, 2023 could be the perfect year to do so. 

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