Sociologist Brené Brown said we should “snuggle up to uncertainty” during one of her lectures a few years ago. She has written numerous bestsellers and is an expert on vulnerability, shame and empathy. She encourages us to live a “wholehearted” life, and her comment about uncertainty pertained to accepting that there are many facets of our personal life that we cannot control.
There is uncertainty in our health, as well as the health and well-being of family members and friends. We don’t know what tomorrow — or next week or next month — may bring. There is uncertainty because of natural disasters and unexpected events, such as the COVID-19 pandemic that began in early 2020. There is uncertainty in our politics and in global events.
And there is uncertainty in our finances, which we will focus on in this article. Let’s look at two examples: First, the performance of investments in recent years and in the future, and second, the tax changes that may be occurring on Jan. 1, 2026, and how they may impact you.
Investment performance
Which of the following statements are correct?
1. The S&P 500 index decreased 37% in 2008.
2. The S&P 500 index increased 28% in 2021.
3. The S&P 500 index decreased 18% in 2022.
4. The S&P 500 index increased 24% in 2023.
5. The S&P 500 averaged an annual return of 9.74% over the past 20 years.
All of the above statements are correct, and the statistics include reinvesting dividends. Although the average return over the past 20 years (and 50 years and 100 years) has been attractive, the returns have been volatile in the past three years. Some years — such as the Great Recession in 2008 and early 2009 — were gut-wrenching. Beyond looking only at investments, many Americans lost their homes and their jobs. Many have not yet recovered from the trauma.
Some experts — such as Yale economics professor and Nobel laureate Robert Shiller — expect the U.S. stock market returns in the next 10 years to be lower than the past 10 years. In a New York Times article by Jeff Sommer dated April 5, Shiller suggested that the U.S. stock market is overpriced based on corporate earnings. Sommers states, “This reminds Professor Shiller of the rallies of the 1920s and the dot-com boom, which both ended badly.” Other experts point to the extremely high U.S. debt ($34.5 trillion) as a reason to be concerned about the future of the stock market.
The future performance of our investments is uncertain. What can you do to protect yourself from the uncertainty?
• Design your investment portfolio to not be overly aggressive. Keep your asset allocation “balanced” by including fixed income in your accounts.
• Keep your investment fees low.
• Don’t neglect your investments. Monitor them and rebalance your accounts at least once each year.
• Set up your savings to be automatic. If possible, aim to save 15% to 20% of your income, and continue saving even when the stock or bond market declines. You can do this through your employer’s retirement plan, in a Roth IRA or in a taxable account.
• If you do not understand your investments, devote some time to educating yourself on financial topics using books, online articles or investment courses.
Tax changes may occur on Jan. 1, 2026. In late 2017, major U.S. tax changes were made by Congress that became effective on Jan. 1, 2018. Called the 2017 Tax Cuts and Jobs Act, the changes were estimated to cost $1.5 trillion in foregone taxes. The changes included eliminating the top income tax bracket, raising the standard deduction and drastically reducing the maximum tax rate for corporations (from 35% down to 21%).
Many Americans (and corporations) paid lower taxes as a result of the changes, but the tax cuts have been very expensive. The U.S. deficit was $1.7 trillion in 2023. When the tax changes were enacted, they were designed to “sunset” after eight years, so they are scheduled to revert back to the previous levels (with inflation adjustments) on Jan. 1, 2026. How taxes will change on that date is uncertain. Many Republicans (and former President Trump) want to extend all of the tax cuts, which will significantly increase the U.S. debt. The Joint Committee on Taxation has estimated extending the tax cuts for another decade will cost about $3 trillion. President Biden has proposed extending the tax cuts for most Americans, but increasing taxes for households with over $400,000 in taxable income (estimated to be 2.6% of all households). President Biden has also proposed raising the highest level of corporate taxes from the current 21% to 28%. Biden’s proposals include requiring the wealthy and large corporations to pay more in taxes, while trying to reduce the annual deficit.
Other changes that occurred as a result of the 2017 tax law included limiting “state and local taxes” at $10,000 per year (for taxpayers who itemize). This resulted in a tax increase for many Americans who live in areas with high property taxes and high state income taxes. The estate tax exemption was drastically increased from $5.5 million in 2017 to the current $13.6 million per person. If the changes are reversed (because of the sunset on Jan. 1, 2026) the estate tax exemption would be reduced to roughly $7 million.
With all of the uncertainty over future taxes, what can you do?
Most Americans will do nothing. That is the default. A “wait and see” attitude will be common. However, if you expect to pay higher taxes in the future, consider the following tax-planning strategies:
• Consider doing Roth IRA conversions now, which require that you pay the taxes on the amount converted that year, but can significantly reduce taxes in future years. Roth IRAs do not require RMDs (required minimum distributions) when you reach age 73 (increasing to 75 in 2033). That can reduce your income (and income taxes) if you do not need withdrawals to cover your living expenses.
• Consider when you want to start receiving Social Security benefits. Waiting until age 70 to begin will increase your monthly benefit by roughly 26% (as compared to starting at age 67). The increase is 8% per year (compounded) between your full retirement age and age 70. Take into account other income (pensions, investments, annuities, etc.) to determine when it is best to start Social Security benefits. Also, consider whether you will be required to pay IRMAA (income-related monthly adjustment amount), which are the Medicare surcharges for individuals with modified adjusted gross income over $103,000 in 2024 and couples over $206,000.
• Keep your taxable investment accounts as tax-efficient as possible.
• If you have a large estate, consider meeting with an estate attorney to discuss potential estate planning strategies.
• If you itemize on your taxes, pay attention to tax deductions such as charitable deductions and medical expenses. Also, take advantage (when possible) of credits for electric cars and solar panel installations.
There is tremendous uncertainty in our world. Much of it is not within our control, but the uncertainty in our investments (to a large degree) is manageable by proactively paying attention and using wise tax planning. Although we cannot control whether the S&P 500 plummets 25% or 50% this year— or whether it soars 25% or 50% — we can “snuggle up to uncertainty” and be ready. And we can keep a healthy perspective by focusing on maintaining good health and caring for our loved ones.
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Donna Skeels Cygan, CFP®, MBA, is the author of The Joy of Financial Security. She owned a fee-only financial planning firm for over 20 years and is now writing a new book that will be published in 2025.