With identity theft and taxpayer fraud on the rise, the Internal Revenue Service (IRS) is encouraging taxpayers to take extra caution when filing tax returns.
Many people’s finances have been on a roller coaster ride over the last few years of economic turmoil. Many businesses shut down or reduced their business in 2020, which resulted in a high rate of under and unemployed workers. The government stepped in to offset the economic hardships with large stimulus packages and low-interest rates that also affected the economy.
Some people were able to use stimulus money for travel, home renovations, and other large purchases. In contrast, others used the money to bridge the gap between their income and daily living expenses. Many people invested in the stock market, causing indices like the S&P 500 to skyrocket. If you have an investment portfolio or a retirement account, you may have seen its value increase dramatically in 2020 and 2021.
The Current Situation
In 2022, pent-up demand, supply chain shortages, and a recovering job market created the perfect storm for inflation worldwide. Inflation significantly hurts people on fixed incomes that do not own their homes. If your income remains constant, but your cost of living increases by 10%, you have to make some hard decisions about how to cut back. Going out to eat, buying new clothes, and other extras are often the first to go.
When people cut back on spending, they worry about the risk of recession. However, so far, the demand for goods and services remains high. The economy is a delicate balance, and the Federal Reserve uses policies such as raising or lowering interest rates in an attempt to stabilize the turbulence. Investors, traders, and retirement fund managers try to predict what will happen and act accordingly. With fears of recession, rising interest rates, and uncertain world politics, the stock market lost some of the meteoric gains from 2021.
How the Economy Affects Your Finances
If you look at your retirement account, it is likely to be at the same level as one year ago. Of course, the same amount of money has less buying power, which concerns many retirees and those reaching retirement age.
Riding the turbulent waves of the stock market and inflation is a little easier for those still in the job market. Wages often increase with the cost of living, not always at the same pace, but better than a fixed amount. Don’t be afraid to contribute to your retirement account. According to Investopedia, the stock market returns an average of 7% annually over inflation. However, that rate is over the long term, and recessions can last a decade or more. That is why the timing of when you start drawing on your account can greatly impact your financial well-being.
What is Next?
No one has a crystal ball to predict the future, and yet we all have to make decisions now that affect us later. You may be trying to weigh the cost of long-term care premiums versus saving on your own. Or perhaps you are thinking about buying or selling property or a part of your investment portfolio. You might be thinking about the tax implications of gifting money or transferring assets into your estate plan. Whatever you are thinking about, it helps to have an estate planning attorney to help you analyze the pros and cons of different options. We can work with your financial advisor to help you plan and prepare for various scenarios. Give us a call today to start these important conversations.
If you’re looking for an estate planning attorney in the Mount Dora, Florida area, please contact us at (352) 565-7737! We look forward to hearing from you!