What is Tax Loss Harvesting?

Jan 2, 2023

I saw an article that talked about the so-called financial planning ‘rules’ that should be abandoned.  One is the “60-40” portfolio split between stocks and bonds.  The other is the “4%” withdrawal rule (if a retiree withdraws 4% in their first year, and adjusts that for inflation every year after that, their money has good odds of lasting 30 years).  Do you agree?  Should we look at these as starting points in investing rather than hard-and-fast rules?  When the market is down, there might be a tax opportunity.  It comes when you offset any gains with some of your losses.  It’s called “tax loss harvesting.”  Can you explain more?  Do we have to wait until the end of the year to take advantage of it? According to a new paper from the Center for Retirement Research, there are 5 big retirement risks that people aren’t giving even attention. In order, they are:

• Longevity risk - Running out of money because you live so long
• Health risk - High medical expenses eating into your monthly income
• Market risk - Losing money in the stock market or the housing market
• Family risk - Divorce, the death of a spouse, or other family issues
• Policy risk - Taxes going up or Social Security benefits going down

The paper points to “stable lifetime income resources” to cover all these fears. How does your planning solve for all these issues?

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