Stay on course in 2025 to achieve your financial goals by preparing for possible tax changes, addressing inflation concerns, and understanding rising risk management costs.

With a new administration in Washington, changes to tax policies and economic factors may be on the horizon. Investors should be prepared for a period of adjustment. This may mean making gradual shifts in how they approach taxes and inflation. While some may choose to make small modifications to their financial plans, it is important to remember that the most successful strategies focus on long-term goals.

In this financial planning and wealth management guide, I highlight key areas for investors to consider in order to stay on track and work toward their financial and legacy goals.

For 2025, here are three key areas to focus on:

• Prepare for potential changes in tax laws
• Address ongoing inflation concerns
• Understand rising risk management costs

Prepare for Potential Changes in Tax Laws

One of the most common questions from investors since the election has been, “What will happen with income and estate taxes in 2025?”

Congress is expected to introduce major tax legislation in 2025, but any changes likely will not take effect until 2026. We generally do not recommend making tax decisions based on speculation about future laws, but being aware of possible changes can help investors plan accordingly.

The primary focus for Congress in 2025 will be the Tax Cuts and Jobs Act (TCJA), which introduced significant tax changes in 2017, such as lower individual income tax rates and a higher estate tax exemption. These provisions will expire at the end of 2025 unless Congress takes action.

President-elect Trump has expressed a desire to extend many of the TCJA’s provisions, repeal the cap on state and local tax deductions, and eliminate taxes on tips, overtime, and Social Security benefits. However, campaign proposals often serve as starting points for negotiations, and final decisions will depend on Congressional discussions. Even if some tax changes are expedited through the budget reconciliation process, they are unlikely to take effect before 2026.

High-net-worth individuals may want to consider taking advantage of the historically high estate tax exemption ($13.99 million per individual in 2025) while it is still available, as this could help reduce future estate tax liabilities.

Overall, based on historical trends and previous Republican policies, we anticipate that any new tax laws will either maintain or reduce taxes for individuals. The final outcome will depend on negotiations within Congress, particularly among those focused on deficit reduction.

Address Ongoing Inflation Concerns

Inflation peaked in 2021 at its highest level since 1981. Although the rate of price increases has slowed, many investors—especially retirees and those saving for retirement—remain concerned about its impact on their expenses and lifestyle. This concern is valid. While inflation has eased, the overall cost of living remains elevated, and it is unlikely to decline unless the economy experiences deflation, which is not expected.

Policy discussions in Washington, including potential new tariffs and immigration reforms, could also influence inflation in 2025, making it difficult to predict with certainty.

In a recent survey conducted before the election, 77% of American investors said inflation was a major concern when planning for retirement. Among non-retirees, 26% reported that inflation and economic uncertainty might delay their retirement plans.

How to Manage Inflation in Your Portfolio

While inflation is beyond an investor’s control, there are strategies to help mitigate its impact on financial plans:

• Stay Invested: Research indicates that stocks have historically been a strong defense against inflation. While past performance does not guarantee future results, maintaining an investment strategy aligned with your goals, time horizon, and risk tolerance can be beneficial. Diversification across various asset classes can also help.
• Consider Inflation-Protected Securities: Treasury Inflation-Protected Securities (TIPS) can help safeguard a portfolio against inflation since their principal value adjusts with inflation. If held to maturity, they can provide a positive inflation-adjusted return.
• Use a Bond Ladder Strategy: For retirees or those seeking stable income, a bond ladder—buying bonds with staggered maturity dates—can provide consistent interest payments and reinvestment opportunities at potentially higher rates.
• Maintain Emergency Savings: Keeping a cash reserve in a high-yield checking or money market account can provide peace of mind when inflation affects daily expenses. Investors should aim for an emergency fund covering three to six months of living expenses, while retirees should target at least a year’s worth of spending needs, excluding Social Security or pension income.
• Plan for Short-Term Cash Needs: Retirees should evaluate their short-term cash requirements for the next one to four years and consider keeping this money in low-risk assets like high-quality, short-term bonds or CDs.

An online inflation calculator can help assess how inflation affects the value of the U.S. dollar and the returns needed to maintain purchasing power. You can access the Schwab Moneywise inflation calculator at schwabmoneywise.com/inflation-calculator.

Understand Rising Risk Management Costs

Risk management is a critical component of financial planning. For many people, their home is their most valuable asset, and having the right insurance coverage is essential.

About 66% of U.S. households own their homes rather than rent, making the sharp rise in home insurance premiums an important factor to consider for wealth planning in 2025 and beyond.

A study by the National Bureau of Economic Research found that homeowner’s insurance premiums increased by more than 30% from 2020 to 2023. The cost varies significantly by location. Homeowners in high-risk areas—such as those prone to hurricanes along the Gulf Coast or wildfires in the Mountain West—saw average annual premiums exceed $4,000 in 2023, while areas with lower natural disaster risks had premiums of $2,000 or less.

To manage these rising costs, homeowners should review their insurance policies regularly to ensure coverage limits and deductibles remain appropriate for their needs.

If natural disasters continue to become more frequent and severe, insurance costs are likely to rise further. These higher costs serve as a reminder to reassess budgets, cash flow, and overall financial plans annually. Understanding where your money is going can help you adjust your spending, saving, and financial goals as needed.

Managing Investment Risk

Beyond insurance, risk management also applies to investments. Staying focused on your financial goals and time horizon is essential for making prudent investment decisions. Understanding your risk capacity—the amount of risk you can take while still achieving your financial goals—can help you continue investing for long-term wealth growth.

In 2025, we will continue to emphasize goal-based investing strategies designed to manage market fluctuations and position investors to protect and potentially grow their wealth over time.

Final Thoughts

While 2025 may bring tax policy changes, shifting inflation trends, and rising insurance costs, effective financial planning requires looking at the bigger picture. Aligning your financial strategy with your personal goals, time horizon, and risk tolerance can help you navigate short-term uncertainties while working toward long-term success in growing, protecting, and utilizing your wealth.