As the new year has arrived, it is time to reassess financial goals and make plans for a secure retirement. Whether retirement is decades away or just a few years, making deliberate financial plans now will reap benefits in the future.
To ensure financial security in retirement, here are the top ten financial plans and recommendations to follow throughout the year.
Increasing contributions to retirement plans such as IRA, 401(k), or other savings plans is essential to secure financial stability in retirement. If you haven’t done so yet, it’s a good idea to increase contributions by 1% to 2% annually. Over time, even small increases can accumulate into significant amounts.
Recommendations:
• Automate contributions to be deducted before receiving your paycheck.
• Increase contributions each time you receive a raise.
Having an investment portfolio composed of only one type of investment exposes you to risks. A diversified investment portfolio includes investments in various assets such as stocks, bonds, and real estate. This minimizes risks and maximizes potential returns.
Recommendations:
• Conduct an annual review of your investment portfolio and rebalance when necessary.
• Seek advice from a financial advisor to ensure your investments align with your risk tolerance and long-term goals.
High-interest debt can hinder your ability to save for retirement. Therefore, prioritizing paying off credit card debt, personal loans, and any other high-interest debt should be your top priority.
Recommendations:
• Maintain momentum and focus by utilizing the debt snowball or avalanche method.
• Avoid taking on new debt unless absolutely necessary.
Annuities can provide a stable source of income in retirement. Hence, they are an essential component of a diversified retirement plan. Explore fixed, variable, and indexed annuities to determine which suits you best.
Recommendations:
• Consult a financial planner to understand the pros and cons of annuities.
• Start small if you’re unsure and adjust as your confidence grows.
Even in retirement, having a stable emergency fund is indispensable. It can prevent you from dipping into your retirement savings for unexpected expenses.
Recommendations:
• Reserve at least three months’ worth of living expenses in a high-yield savings account.
• Automatically transfer to your emergency fund monthly.
Delaying Social Security benefits until age 70 can significantly increase your monthly withdrawals. If you have good health and expect a long lifespan, this strategy can be highly beneficial.
Recommendations:
• Use online calculators, such as the one provided by the SSA, to assess the impact of delaying benefits.
• Budget so that you are not heavily reliant on Social Security later in life.
Trimming your budget now can accelerate your retirement savings, even if retirement is years away. Start by finding ways to reduce expenses through assessing your spending habits.
Recommendations:
• Track your expenses for a month to evaluate your consumption patterns.
• Evaluate what is essential and what is merely a desire among discretionary spending.
• Use tools like Rocket Money to lower bills, track expenses, monitor credit scores, and cancel unnecessary subscriptions.
If you are aged 50 or above, you can contribute more than the standard limits to your retirement account. The extra contribution limits for 2024 and 2025 are $7,500 for 401(k)s, along with the annual contribution limit of $23,500. For IRAs, the extra contribution limits for 2024 and 2025 are $1,000, in addition to the annual contribution limit.
Moreover, starting from 2025, individuals aged 60 to 63 can increase their retirement contributions. This is known as the “super catch-up contribution,” with the amount being $11,250 in those years. However, employers can choose whether to implement this change, so each plan sponsor can decide independently.
Recommendations:
• Review your account’s extra contribution limits annually.
• Adjust your budget to accommodate higher contributions.
Taxes can significantly impact retirement savings, but tax-advantaged accounts and strategies can help you save more.
By opening tax-advantaged accounts, you can save on taxes and meet savings goals. Some tax-advantaged accounts allow for pre-tax contributions, reducing taxable income. As your funds grow, you can defer paying taxes on dividends and capital gains.
The most common tax-advantaged accounts include employer-sponsored 401(k), 403(b), and 457 plans, IRAs, and Health Savings Accounts (HSAs).
Recommendations:
• Discuss Roth conversions and tax-loss harvesting with a tax advisor.
• Stay informed about tax law changes that might affect your retirement plans.
Life circumstances and market conditions inevitably change. It is important to review your retirement plan annually to ensure it aligns with your goals.
Recommendations:
• Meet annually with your financial advisor.
• Utilize online tools like the Charles Schwab retirement calculator to stay on track with your retirement goals.
How to Stick to Financial Plans
Adhering to a plan requires discipline and strategy, not just setting them. Here are some additional suggestions to keep yourself on track:
• Set specific goals. The vaguer the plan, the harder it is to achieve. Instead of saying, “I want to save more money,” set a concrete goal like, “I will increase my 401(k) contribution by 2% this year.”
• Create a vision board. Whether you dream of traveling the world in retirement or spending time with family, remember what you want to do. This will motivate you to stick to your financial goals.
• Utilize technology. Use budgeting apps, retirement calculators, and investment trackers to monitor your progress.
• Find an accountability partner. Share your plan with a trusted friend, family member, or financial advisor who can help you stay accountable.
• Celebrate milestones. Remember to acknowledge and reward yourself for successes along the way. This may give you the drive to tackle larger projects in the future.
To secure financial stability in retirement, careful planning, consistent effort, and wise financial decisions are necessary. These ten recommendations can help you lay a solid foundation for a comfortable retirement.
The views and opinions expressed in the article are solely for general informational purposes and should not be construed as recommendations or solicitations. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal financial advice. The Epoch Times is not responsible for the accuracy or timeliness of the information provided.