2024 Planning and Wealth Management Outlook (2024)

In 2024, investors will likely face a turning point in interest rates, inflation, and potentially the economy. This could lead to short-term stressors emotionally and in the market and economy. Our theme for 2024, and in any year with regard to planning and wealth management, is to widen the lens. Have the discipline to look at the big picture, not just the short-term details. And have a plan based on your personal goals and time horizons.

For 2024, here are three themes to consider in wealth management plans:

• Think time horizon
• Get your personal number for retirement
• Keep an eye on taxes

Learn more about the core wealth management topics at Schwab at schwab.com/wealth-management/wealth-advisor/strategy.

In 2024, we suggest investors continue to focus on setting clear goals. Traditional investment planning has generally focused on two topics: Can you pick the "right" investment to outpace markets today? And, are you on track for retirement? For most investors who have wealth or are building it, this approach is likely too simple. That's because most investors have multiple goals, objectives, and priorities for investing. Growing wealth over time is important, but so is preserving and preparing a portion of investments for when they're needed. Time horizon, in volatile markets particularly, is the "wider lens" we suggest investors take in investment planning.

Cash and short-term investment management, we believe, will remain important in 2024, particularly if the Federal Reserve follows the path Chairman Powell laid out in the Fed's December 13 meeting to a "turning point" in interest rates and begins to cut, rather than pause or hike, short-term interest rates in 2024. This has potential implications for markets and the economy, but also for managing money needed in the shorter term that investors may be holding in higher-yielding cash investments, including money market funds, CDs, and other short-term investments.

We suggest that investors consider two issues:

First, how much money might you need from your portfolio in the next two to four years? Second, how is that money invested? How are you managing this shorter-term part of your portfolio and wealth management plan? Consider working on your own, or with financial planner or wealth advisor, to review interest rates and then potentially lock-in rates on various short-term investments, including CDs or high-quality short-term bonds. Doing so can help manage the timing of principal repayments based on your financial plan.

Retirement is Schwab's second core wealth management topic, and it is the most important financial goal, in our experience, for most investors. How much do you need for retirement? I'm asked this frequently by the financial media, and various surveys (including several managed by Schwab) report different numbers. Is it $1 million for the average American? $1.6 million? Or is that too high? Or too low?

The number depends 100% on your personal situation, current and desired lifestyle, and goals. We suggest investors start by tracking current spending. Then, work with a professional financial planner or wealth advisor to use those numbers to find your target. Your "number" for retirement may not be a single number, but rather a range based on your life, not someone else's, for how much you need for retirement.

If you're already in retirement, focus on how efficiently you are managing, investing, and withdrawing from investments. Whether you are saving for or living in retirement, every penny counts. Investors have many strategies available to increase spending and either spread out or reduce taxes in retirement, from new catch-up contribution options to multi-year financial planning that manages tax-efficient withdrawals from brokerage accounts, IRAs, 401(k)s, Roth IRAs, and other accounts.

In 2024, we continue to advocate for "tax diversification." This means using traditional IRA and 401(k)s along with brokerage accounts and Roth accounts to "diversify" how accounts are taxed, providing more flexibility to manage withdrawals and taxes in retirement.

We are also carefully watching the future of Social Security. The most recent Social Security trust fund report, released in March 2023,¹ projects that absent any changes from Congress, the trust fund reserves will run out by 2034, resulting in a projected reduction in benefit payments to about 80% of promised payments. We suspect that ultimately Congress will act, and options including means-testing by wealth, changing benefit start dates, and other actions could bridge the gap.

Learn more about Schwab's 7 Investing Principles at schwab.com/investing-principles.

Tax planning can feel complicated. To help, we advocate a five-part tax planning life cycle:

1. Income tax management
2. Tax-smart account selection
3. Tax-efficient investing
4. Manage taxes in retirement
5. Gift and estate tax planning

Keep in mind, for personalized tax advice or preparation, it's best to work with a CPA or tax professional. Taxes touch on nearly every aspect of saving, planning, and investing. By taking simple steps in each of these areas, disciplined investors may be able to increase after-tax wealth.

Here are some ideas:

• Income tax management. A good place to start is to work with a tax professional to file your taxes and maximize deductions and credits, especially if you own a business or your investments or finances are more complex. Then, educate yourself on tax fundamentals, such as differences in tax rates between ordinary income (such a paycheck) and capital gains, and understanding your tax bracket. Your tax bracket is the rate at which the "next dollar" of income you might earn or gain from the sale of investment will be taxed. This is important, and helpful, to know when working with a wealth advisor.
• Tax-smart account selection. Congress and the IRS give investors the opportunity to choose, and use, a range of options, including tax-advantaged accounts such as 401(k)s, IRAs, Roth accounts, Health Savings Accounts (HSAs), and 529 plans to reduce, defer, or eliminate taxes on saving for retirement, healthcare, or college. Consider using them wisely. Every investor employed by a company that provides a 401(k), ideally, should contribute from their paycheck at least enough to receive the full employer-matched contribution (a feature of most employer-sponsored plans). Then, boost other tax-advantaged contributions, including maxing out your 401(k), adding an IRA or Roth IRA, and contributing to a HSA, if you're eligible.
• Tax-efficient investing. The IRS does not tax earnings and growth on investments in most tax-advantaged accounts at the time they are earned. However, earnings and growth are generally taxed in taxable brokerage accounts. Taxes on investment income, as well as realized capital gains from the sale of investments in taxable brokerage accounts, can cause "tax drag." Be thoughtful about short-term trading and holding income-generating investments, such as high-yield bonds, in taxable accounts to help mitigate and manage taxes.
• Manage taxes in retirement. Start with choosing accounts wisely when saving for retirement. Using a variety of tax-deferred accounts (IRAs or 401(k)s), tax-free accounts (Roths and potentially HSAs), and brokerage accounts can increase your tax diversification—and flexibility—in retirement. Then, combine and time withdrawals from these accounts wisely, taking into account taxes, when you reach retirement. If you've saved a large sum in a tax-deferred account, it can make sense to "smooth out" withdrawals earlier in retirement before the required minimum distribution (RMD) age, which is currently 73. For some retirees, waiting as long as possible to start making withdrawals can create a sudden large increase in withdrawal amount—and tax bill.
• Gift and estate tax planning. Estate planning isn't just about death or leaving money to heirs. It's also about ensuring that everything you've saved and own is used how you intend during your life and at death. For example, giving to charities or loved ones in a meaningful, tax-aware way is a key piece of estate planning and wealth management. Tax-efficient gifting strategies include gifting up to the $18,000 per individual annual gift exclusion (in 2024) without needing to file a gift return, and making large lump-sum contributions in a single year to a donor-advised fund (DAF) to create a tax deduction to help offset any large capital gain generated from a stock sale.

For these and other tax-aware gifting strategies, work with a financial planner, wealth advisor, or tax, trust, and estate specialist. And ultimately, work with a qualified tax professional who has the appropriate training and insight into your complete financial situation before pursuing more personalized or complex tax-aware strategies.

1."The 2023 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds," Social Security Administration, 03/31/2023.