As you plan your retirement and healthcare needs, it’s important to understand how investments and their management can affect Medicare premiums. By strategically leveraging an investment portfolio to align with personal financial goals and healthcare needs, you can mitigate expenses and optimize your finances.
An investment portfolio is the collection of all your assets, including stocks, bonds, mutual funds and exchange-traded funds, under one metaphorical roof. You may also have multiple accounts, such as a 401k, individual retirement account and taxable brokerage accounts, all of which should be considered part of your investment portfolio.
The first step in building an Will my investment portfolio affect Medicare premiums is to make a list of your financial goals. Without a clear purpose, you’ll have a hard time determining how much risk you can accept and what types of investments are most appropriate for you. Next, sort your goals by time horizon. This refers to how soon you’ll need the money you’re investing and allows you to determine what kinds of investments you should consider.
For example, if you’ll need your money in three years, it’s likely that you can’t afford to suffer through a market downturn because you’ll be close to needing the money. Alternatively, someone who won’t need their money for another decade or so could probably withstand a market downturn and potentially benefit from higher long-term returns if they invest in more aggressive portfolios.
To figure out what kind of risk you can tolerate, assess your tolerance for volatility and how much risk you’re comfortable taking on a regular basis. You can do this by calculating your risk-tolerance score, which is often measured on a scale of zero to 10. For example, if you’re not worried about losing 5% of your investment in the short term, you have a low tolerance for volatility. On the other hand, if you can stomach a 10% loss in value for your investment over a short period of time, you have a high tolerance for risk.
As you consider your financial goals, it’s helpful to remember that taxable investments can affect your Social Security benefits and Medicare premium costs. Taxable investments include stocks, mutual funds, annuities and real estate. If you invest in a taxable account, you’ll need to factor in the impact on your taxable income each year, and it’s critical to consult with a financial planner to ensure your assets are positioned in ways that best meet your financial and Medicare goals.
Tax-deferred investments, such as IRAs and employer-sponsored retirement plans, can help you grow your retirement assets faster, reduce the amount of taxes you’ll owe on Social Security benefits and lower the cost of Medicare premiums by lowering your annual taxable income. This strategy can help you avoid the risk of liquidating your investments prior to your retirement date and exposing yourself to tax penalties. In addition, utilizing tax-deferred investments can help you save more by eliminating some of the initial capital gains tax.