The Big Financial Stories of 2021 and What to Expect in 2022 – Kiplinger’s Personal Finance

From high inflation rates and meme stocks like Game Stop to the economy trying to recover from the first year of the pandemic, a lot happened in 2021 that impacted our finances. As we get ready to celebrate the holidays and ring in the new year, its a good time to look back on what happened in 2021 and how we can prepare for the future.

High prices for gas, lumber, homes and groceries started making headlines as early as May of 2021. The U.S. consumer price index rose 6.2% over the previous year in October, marking the biggest jump in inflation since December of 1990. It was even worse in November, with prices rising 6.8%, the fastest pace since 1982. Despite more workers in the U.S. bringing home more in each paycheck, people cant tell due to the higher prices of consumer goods theyre seeing.

As much as we hope these increased costs will be left behind in 2021, economists arent optimistic about 2022. But there are some things you can do now to prepare for these unexpected price increases. Prioritizing your debt will give you the wiggle room in your budget to react to inflated prices at the pump or grocery store. Concentrate on paying off one debt at a time while still making minimum payments on your other debts.

Another way to combat inflation is by contributing to your emergency fund to cushion the blow of rising costs. Your emergency fund should have enough money to cover three to six months of expenses. You may also want to reach out to an expert. Financial professionals have a lot of experience fitting the cost of inflation into a budget. They can be a good resource to make sure youre on the right path when it comes to your finances.

Required minimum distributions, or RMDs, are a mandatory withdrawal that retirees must take from qualified accounts, such as 401(k)s, traditional IRAs or 403(b)s, starting at age 72 for anyone born on July 1, 1949, or later or 70- if you were born before then.

In 2020, minimum withdrawals were suspended for retirees under the CARES Act. The idea was to give retired taxpayers some relief after the stock market dropped more than 30% in March 2020. The 2020 provision let the money retirees would have withdrawn stay in the market and hopefully recover and grow. But that change was only temporary, and in 2021 retirees were required to start making withdrawals again.

The IRS makes changes to the tax bracket thresholds each year based on inflation rates. In 2022, the changes will be significant, going from 1% to 3%. For example, if a married couple was in the upper end of the 35% tax bracket in 2021, in 2022 they can make almost $20,000 more before being bumped up into the top tax bracket of 37%.

We can prepare for changes like these by planning all year-round. Utilizing various tax-planning strategies during your working years can help keep your tax burden management during retirement. If you have concerns about how tax changes could impact your financial future, speak with a financial professional.

The IRS is also changing the maximum amount taxpayers can contribute to their 401(k)s. In 2022, the amount people can contribute to their 401(k) will increase by $1,000 to $20,500 (plus $6,500 more as a catch-up contribution if you are 50 or older, for a grand total of $27,000).

For traditional and Roth IRA contributions, the amount people can contribute is the same as in 2021 ($6,000 per year, or $7,000 if youre 50 or older). However, more high-income individuals will be able to contribute to Roth IRAs next year. The IRS increased the income phase-out range for taxpayers making these contributions. It will range from $129,000 to $144,000 for single taxpayers, and from $204,000 to $214,000 for those who are married filing jointly.

Understanding what changes are coming in the new year can make a big difference in your financial future. Sit down with a financial adviser to create a plan to help you meet your retirement goals.

Founder & CEO, Drake and Associates

Tony Drake is a CERTIFIED FINANCIAL PLANNERand the founder and CEO of Drake & Associates in Waukesha, Wis. Tony is an Investment Adviser Representative and has helped clients prepare for retirement for more than a decade. He hosts The Retirement Ready Radio Show on WTMJ Radio each week and is featured regularly on TV stations in Milwaukee. Tony is passionate about building strong relationships with his clients so he can help them build a strong plan for their retirement.

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The Big Financial Stories of 2021 and What to Expect in 2022 - Kiplinger's Personal Finance