There is no better time to plan things out than when you are officially approaching retirement. But, what does it mean to be approaching retirement? And, what does it really mean to plan things out?

First off, if you are within ten years from retiring and haven’t modeled out your retirement-income plan, it’s time. For many, the idea of doing a retirement-income plan is as unappealing as a root canal. If done well, it really shouldn’t feel that bad!

The retirement-income planning process certainly shouldn’t culminate in an almost-useless, thick report containing a bunch of colorful charts and endless pages of numbers. We all know where that type of report ends up.

Instead, a quality retirement-income plan should help you do two simple things. The goal is to set a reasonable destination and show you a clear set of paths to get there. Most importantly, it should be kept up-to-date to help you confidently re-route as your life inevitably changes.

A retirement-income plan starts with three key building blocks; an inventory of your finances, a picture of how you want to live in retirement and your estimated time of arrival.

The first building block is taking an inventory of your current and future financial resources that will support your retirement years. It starts with tallying up your current investments and layering in your future savings. But, your future resources might include financial events, such as the sale of your business or the decision to downsize your home. Of course, your financial inventory should also include your expected Social Security benefits, possible pension benefits and even a transition to part-time work for a stretch.

The second building block is to summarize your expected living costs in retirement. Just forget the ugly word, budget. Instead, a nicer term is a living cost summary. This is just an assessment of all of your expenses today and after you retire. In the end, all spending is a choice and a living cost summary is just a reflection of your values and priorities. It doesn’t have to be overly precise, but it does need to be honest.

The third building block is to define your desired time of arrival to the point where your work becomes optional. That’s the true working definition of retirement, after all! By the way, this doesn’t have to be viewed as an on-off switch. For some people, it can be a transition.

With your financial inventory, your living cost summary and time of arrival established, a robust retirement-income model can then be created. If it’s done right, it should give you a clear picture of your financial future that deepens your understanding. Importantly, any model worth its salt should allow for the flexibility to test and retest the choices you make today and tomorrow. Think of it as a living map. That’s a whole lot better than a root canal!

Q: A friend just told me of a way to make a guaranteed 8% over the next year by investing in Series-I savings bonds. I’m a natural skeptic and I’ve learned that if something is too good to be true, it probably is! Does that rule apply here?

A: Your friend is not wrong. But, there are some details to understand before jumping in.

In today’s inflationary environment, Series-I savings bonds are getting a lot of headlines. Technically, they will make you 3.56% over the next six months and probably another 4.8% for the six months after that. Together, that’s around 8% on your money over the next year. But, as Paul Harvey used to say, there’s more to the story.

While the headline rate is very attractive today, you should probably view it as a kind of “teaser rate.” While inflation is up wildly, if and when it subsides, Series-I savings bonds will likely lose their current luster.

To start off, the rate of interest earned on Series-I savings bonds is made up of two parts; the fixed interest rate and the inflation part. Together, this is known as the “composite rate.” The fixed rate is currently set at zero. The inflation component is as high as it’s been in decades.

You can only buy a maximum of $10,000 per calendar year of Series-I savings bonds through TreasuryDirect.gov. If you’re married, you can together purchase up to $20,000 per year. While this isn’t chump change, it might take you a long time to build Series-I savings bonds into a meaningful part of your investment portfolio.

However, there are ways to go beyond the maximum $10,000 purchase limit. You could buy Series-I bonds for your children and you can also buy them through your trust, if you have one established. Taken together, you could increase your ability to stockpile Series-I savings bonds at a faster pace.

Before going crazy, you should also consider the illiquidity of Series-I savings bonds. You are absolutely required to hold them for a full year. Given this, Series-I savings bonds aren’t appropriate for any money that you might need access to soon.

Now for the small “life hack”, as my kids would say.

If you are still interested in Series-I savings bonds, you might consider pulling the trigger before the end of April. If you beat that deadline, you’ll get to lock in the current 3.56% semi-annual rate for the first six months and then in October you will also get to lock-in the expected 4.8% rate for the next six months. That gets you to April 2023. But, if you wait until May 1, you’ll only get the expected 4.8% semi-annual rate for the first six months and then in November your Series-I savings bonds will very likely reset to a much lower rate.

In other words, by acting in the next week, you can gain an extra six months of high returns. After that, all bets are off!

There’s certainly been a lot going on lately. Unprovoked war. Oil spikes. Veiled nuclear threats. Inflation worries. Interest rate hikes. And, of course, public slapping! It’s almost too much. So, I’ll add to the list.

Let’s start with the housing market. The well-documented shift to remote work has truly disrupted the real estate market. Not only has this been witnessed locally, it has happened across the country.

The sudden jump in home prices is obviously unsustainable. The only question is how bumpy the return trip toward normalcy will feel. With rising mortgage rates making homes about 15% less affordable for many would-be buyers, it wouldn’t shock me to see outright price declines next year.

Let’s move on to Washington. It looks like Congress cares more deeply about enhancing people’s ability to retire some day than in plugging their own budget holes.

A sweeping bipartisan bill, known as the Secure Act 2.0, recently passed in the House and now it’s the Senate’s turn. Among the possible changes in the House bill is a shift in the required minimum distribution for IRAs to age 73 starting next year and eventually increasing it to age 75.

The Senate’s current legislation envisions moving to age 75 in one fell swoop. Regardless of which legislation eventually wins out, the federal government appears more than happy to wait longer for their tax dollars. Your gain is their pain, at least for now!

Speaking of pain, gas prices have jumped about $1 per gallon since the start of the year. If these prices stick, this equates to about $700 more per vehicle, per year.

Nearly simultaneously, Congress ended the automatic monthly deposits of the child tax credit that began last July with much fanfare. This is clearly a perfect case of imperfect timing. Restarting the deposits seems like an easy, no cost salve for high prices at the pump. But it’s an election year and inflation anxiety is a ready-made bludgeon for one political party.

Finally, it looks like the IRS is changing some rules two years into the game. I believe this next item deserves its own future article. Given the possible tax consequences for some, however, a short preview is in order.

As many know, if you inherited an IRA after 2019, you are no longer allowed to “stretch” your required distributions over your lifetime. Instead, new beneficiaries are required to completely drain their inherited IRA to zero within ten years. However, the pace of this draining process was thought to be left up to their discretion. Well, that’s at least what we believed for the past two years.

Now, under a newly-proposed IRS interpretation of the law, beneficiaries who inherit an IRA from someone who had already begun their own required minimum distributions might also be required to take IRA distributions every year during that ten-year window. While it’s not exactly a slap in the face, it feels just as unexpected!

The scary inflation headlines are all around us and they are getting worse with the horrific news in Ukraine. Compared to a year ago, general prices have risen around 6% to 7%, well above the usual 1.5% to 2% inflation we’ve enjoyed for a long time. Obviously, the recent spike in prices comes as quite a shock. For those with longer memories, the recent headlines feel eerily reminiscent of the runaway inflation of the ‘70s.

Without full confidence, and like the Fed itself, I cannot set aside my belief that the primary driver of our current inflation surge is the pandemic and our reaction to it. We did the only things we could. The Federal government borrowed heavily to smooth out the economic pain and the Fed cut interest rates to zero and bought more assets. The policy choices were few and far between.

Prior to the pandemic, our global economy was basically traveling at high-speeds, bumper-to-bumper and on cruise-control. When Covid ran across the road, the economic pile-up was downright ugly. The economy’s subsequent “re-opening” has acted like the uncoiling of a tightly-wound spring of pent-up demand. This surge in demand has been met with a still-constrained supply of goods and services. This imbalance is both painful and temporary, in my view.

When I dig into the inflation data, I do see reason for hope. For starters, the price spikes of certain items are punching way above their weight class. Is it reasonable to assume the 40% year-over-year spike in both used cars and gas prices and the 12% year-over-year pop in new car prices will be repeated in the future? Together, they explain almost 50% of the inflation we’re seeing today, but they only account for about 12% of our spending. When these extremes naturally moderate, so too should our inflation headlines.

The ghosts of the ‘70s are now appearing in the minds of the Fed and politicians. They know that once a self-reinforcing cycle of price hikes followed by rising wages gets going, it can be very painful to stop. Their prescription includes a combination of interest rate hikes, the end of asset purchases and, ultimately, the shrinking of their balance sheet. For added insurance, they are also signaling that they aren’t afraid to push us into a recession, if that’s what it takes.

There is evidence that the Fed’s commitment to stopping inflation is believed by investors. For example, market-based inflation expectations are not wildly rising. Expectations of annual inflation five years from now sits at about 2.4% as compared to about 1.7% just before Covid hit. Looking over the past decade or so, today’s views about future inflation aren’t all that different than before. While the Fed does have reason for concern, panic is not yet in the cards.

Investing in the face of these uncertainties is obviously a serious challenge. I’d first caution against the abandonment of bonds, regardless of recent negative returns. I’d also caution against the allure of rising commodities. Swinging at pitches after they’ve landed in the catcher’s mitt is not a recipe for success. I know I sound old, but please forget about cryptocurrencies, too.

Without trying to sound overly passive, it’s always wise to stick to the tried-and-true advice of maintaining a reasonable mix of stocks and bonds. Beyond that, I’d note that after the rise in interest rates over the last six months, shorter-term bonds are looking much more attractive than before. And, of course, it’s always a good bet to stick with solid companies that have the ability to somewhat deal with the challenges of inflation while continuing to pay out reasonable dividends.

While today’s bold headlines have a way of grabbing our attention – and, yes, uncomfortable inflation can be felt all around us – my humble view is this too shall pass. My sincere hope is that the conundrum of inflation won’t be too painful to squash.

Another tax season is underway. With this year’s official deadline of April 18, rather than the oddball deadlines in May and July that we’ve seen in recent years, this season has some new items to consider and some old things to review.

For parents, your child tax credits were boosted to $3,000 for each child between the ages of 6 and 17. And, for your younger children, you also get an additional credit of $600. But, don’t forget, you likely already received half of your child tax credits in the form of those mysterious monthly deposits that began in July of last year and just as mysteriously ended in January.

For retirees over age 70 ½, if you used your IRA for some charitable donations, be sure to review your tax forms before passing them on to your tax preparer. It’s important for you to know that brokerage firms don’t subtract your donations from their tax reports. Let your tax preparer know how much you donated from your IRA.

One more thing about IRAs. All workers, regardless of age, can contribute to an IRA to help offset their earned income. A few years ago, the age limit for IRA contributions was eliminated. So, if you’re 72 or over and were therefore required to distribute money from your IRA, you can at least offset some of your tax bite by contributing money right back into your IRA. But, please remember, you must have earned income to make an IRA contribution.

For people who have high-deductible health insurance coverage, you are likely eligible to contribute to a health savings account or HSA. You can contribute right up to the tax filing deadline. HSAs are kind of like the Holy Grail of taxes. You’ll get a tax break today and you’ll never have to pay any taxes on this money or its earnings as long as it is used to pay for qualified medical expenses.

Next, if you find that you routinely owe money at tax time, look for income sources to automatically have your tax payments withheld for you. For employees, your paycheck is the most logical source for your tax withholding. For self-employed people who don’t draw any paycheck, you’re stuck having to make quarterly estimated tax payments. And, for retirees, talk to your financial advisor about establishing automatic tax withholding from a combination of your IRA distributions, pension benefits or even your Social Security. Trust me, it’ll make your life a lot easier.

Finally, if you didn’t receive your $1,400 stimulus payment last year, now is your chance to get that money. You probably received an IRS letter that summarized the payments they believe you received. Be sure to scour your bank records to confirm the payment actually landed in your account. After your review, if you are still certain you didn’t get any stimulus money, ask your tax preparer to claim your missing tax credit on this year’s tax return.