As we continue to move into a new year, it’s important to use this time to assess your retirement plans and make any necessary adjustments. Retirement may feel far off, but taking the time to review your strategy now can help set you on the right path for 2025. Here’s what you need to review and adjust to ensure you’re on track for a secure retirement future.
1. Review Your Retirement Contributions
One of the most important aspects of retirement planning is ensuring that you’re consistently contributing enough to meet your long-term goals. At the start of the year, take a moment to review your contribution levels and determine if they’re still in line with your financial situation.
Increase Your Contributions: If you’ve received a raise, or your financial situation has improved, consider increasing your retirement contributions. Many people under-contribute, meaning they miss out on maximizing their retirement savings. The IRS sets annual contribution limits for retirement accounts, like 401(k)s and IRAs, so make sure you’re taking full advantage of those opportunities. For 2024, you can contribute up to $22,500 to your 401(k), or $30,000 if you’re over age 50. For IRAs, the contribution limit is $6,500 ($7,500 if you're 50 or older).
Employer Matching Contributions: If your employer offers matching contributions, make sure you’re contributing at least enough to get the full match. This is essentially free money and an opportunity to supercharge your savings.
By boosting your contributions, you give your retirement savings the chance to grow even faster, thanks to compound interest. Every dollar you add today will be worth more in the future.
2. Assess Your Portfolio Performance
The new year is also an ideal time to evaluate your retirement portfolio and ensure it’s performing as expected. Reviewing how your investments have performed over the past year is a crucial step to understand whether your portfolio needs adjustment.
Rebalance Your Portfolio: Over time, some investments will grow faster than others, which can skew your portfolio’s asset allocation. If you originally set a goal to have a certain percentage in stocks, bonds, and other assets, check to see if you still align with that target. Rebalancing your portfolio ensures you maintain a level of risk that’s appropriate for your time horizon and financial goals.
Diversification: Ensure that your portfolio is diversified to reduce risk. The goal is to spread out your investments so that they’re not all subject to the same economic forces. This could include diversifying among asset classes (stocks, bonds, real estate, etc.) or across different sectors or geographic areas.
Consider Your Risk Tolerance: Your risk tolerance may change over time as you approach retirement. If you’re many years away from retirement, you may be comfortable taking on more risk in pursuit of higher returns. As you get closer, it might make sense to gradually reduce your exposure to higher-risk investments and shift toward more conservative options.
By checking on the performance of your portfolio now, you can take proactive steps to correct any imbalances and ensure that your investment strategy aligns with your retirement timeline.
3. Evaluate Your Retirement Goals
Your financial goals and priorities may shift as you move into a new year, so it’s essential to take a step back and reassess your retirement goals for 2025 and beyond.
Adjust Your Retirement Target: Are you planning to retire earlier than you originally thought, or are you postponing retirement for a few more years? If your timeline changes, so should your retirement savings strategy. For example, if you’re planning to retire earlier, you may need to ramp up contributions or adjust your portfolio to be more growth-focused.
Account for Lifestyle Changes: Your vision of retirement may also change. Are you planning to travel more? Or maybe you’re considering downsizing your home or taking up a new hobby that requires a financial investment. Updating your retirement goals based on your evolving desires will ensure you’re setting realistic targets.
Having clear, updated retirement goals will allow you to tailor your savings strategy accordingly, making sure you have the resources to fund the lifestyle you want in retirement.
4. Review Your Tax Strategy
Tax laws are always evolving, and changes to the tax code can significantly impact your retirement savings strategy. The beginning of the year is a great time to review your tax strategy for 2025 and ensure you’re optimizing your retirement contributions in a way that minimizes your tax liability.
Tax-Advantaged Accounts: Contributing to tax-advantaged accounts like a traditional 401(k) or IRA can reduce your taxable income in the present while allowing your investments to grow tax-deferred. On the other hand, contributing to a Roth 401(k) or Roth IRA allows for tax-free withdrawals in retirement. Be sure to take advantage of whichever accounts align best with your tax situation.
Required Minimum Distributions (RMDs): If you are nearing age 73 (the age when RMDs start), it’s important to plan for how RMDs will affect your retirement income strategy. RMDs can push you into a higher tax bracket, so you may want to consider strategies to minimize their impact.
Consulting with a tax advisor at the start of the year can help you make adjustments that improve your overall tax efficiency for retirement.
5. Don’t Forget Estate Planning
While retirement planning is at the forefront of your financial strategy, it’s also a good time to think about how your assets will be distributed once you’re no longer here. Estate planning is an essential part of ensuring that your family and loved ones are taken care of.
Review Beneficiaries: Make sure that the beneficiary designations on your retirement accounts and other financial products are up-to-date. If there have been any life changes (such as marriage, divorce, or the birth of a child), it’s crucial to adjust your beneficiaries accordingly.
Consider Your Legacy: If you haven’t already, consider establishing a trust or other mechanisms to manage your estate in a way that minimizes taxes and ensures your wishes are carried out.
6. Meet With a Financial Advisor
Finally, working with a financial advisor can help ensure that your retirement strategy is on track. A financial advisor can help you navigate the complexities of retirement planning, from understanding investment options to adjusting your strategy in light of market conditions and personal goals. Meeting with an advisor at the beginning of the year is an excellent way to start 2024 with a clear, actionable plan for retirement.
Final Thoughts
As we move into the new year, take the opportunity to review and adjust your retirement planning for 2025. By reviewing your contributions, assessing your portfolio, and adjusting your goals, you’ll ensure that your retirement plan is aligned with your financial vision for the future. Starting the year with these important steps will give you confidence that you’re taking the right actions to achieve the retirement lifestyle you desire.
