retirement planning

The Big Financial Stories of 2021 and What to Expect in 2022

There were a lot of big financial stories in 2021, especially as the economy tried to rebound amid the pandemic. As we head into the new year, there are some significant financial changes everyone should keep an eye out for.

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, it’s a good time to look back on what happened in 2021 and how we can prepare for the future. 

Inflation Reaches an Almost 40-Year High

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 can’t tell due to the higher prices of consumer goods they’re seeing. 

As much as we hope these increased costs will be left behind in 2021, economists aren’t 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 you’re on the right path when it comes to your finances.

RMDs Return

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 70-½ 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.

What Do We Need to Watch Out for in 2022?

Changes to the IRS Tax Brackets

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. 

401(k) Contribution Changes

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 you’re 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.

About the Author

Tony Drake, CFP®, Investment Advisor Representative

Founder & CEO, Drake and Associates

Tony Drake is a CERTIFIED FINANCIAL PLANNER™and 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.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
The 12 Best Tech Stocks to Buy for 2022
tech stocks

The 12 Best Tech Stocks to Buy for 2022

The best tech-sector picks for the year to come include plays on some of the most exciting emergent technologies, as well as several old-guard mega-ca…
January 3, 2022
How to Know When You Can Retire
retirement

How to Know When You Can Retire

You’ve scrimped and saved, but are you really ready to retire? Here are some helpful calculations that could help you decide whether you can actually …
January 5, 2022

Recommended

Is This the Year to Lower Your Taxes While Helping the Environment?
real estate investing

Is This the Year to Lower Your Taxes While Helping the Environment?

Going solar, whether for your home or for a commercial project, can bring along with it powerful tax credits for the next several years.
January 22, 2022
12 Questions Retirees Often Get Wrong About Taxes in Retirement
retirement

12 Questions Retirees Often Get Wrong About Taxes in Retirement

You worked hard to build your retirement nest egg. But do you know how to minimize taxes on your savings?
January 21, 2022
Tattoos and Piercings in the Workplace: Can You Be Fired?
careers

Tattoos and Piercings in the Workplace: Can You Be Fired?

If your boss told you to cover your tattoos, remove your piercings or find another job, what would you do? What are employers’ and employees’ legal ri…
January 21, 2022
Why Fixed-Rate Annuities Pay More than Bank CDs
annuities

Why Fixed-Rate Annuities Pay More than Bank CDs

Have you looked at the interest rates CDs pay lately? If you’re underwhelmed, you may want to look into a fixed-rate annuity. Each has distinct pros a…
January 21, 2022