Optimize Your Retirement Savings Plan by doing a Financial Review. This is How To Go About It.

After the chaos of the previous year, a financial review in January is even more critical than usual.

The stock market in 2024, a year unlike any other, went up and down like a toy and ultimately finished far lower than it had at the beginning of the year. Savings benefited greatly from the sharp increase in inflation and interest rates, but bond and bond fund owners suffered greatly as their holdings’ values collapsed.

The economic and financial climate has altered considerably over the past year, but opportunities and ways to lessen the blow still exist. The following are some suggestions.

Examine your means of production and consumption to ascertain whether or not you are on track to achieve your objectives. If you need to change how you spend or save money, now is the time to do it.

Think about how much of your income you can put toward retirement if you haven’t already. Putting money into a 401(k) or 403(b) plan can lower your taxable income—the deadline for 2024 payments passed on December 31. However, you should review your 2023 contributions. If you aren’t making any contribution, you should start doing so. It would be best if you considered giving as much as you can afford, up to the IRS maximum. The maximum contribution to your 401(k) or 403(b) plan for 2019 is $22,500, up from $20,500 in 2024. Age 50 and up gets you an extra $7,500 contribution.

Individuals in a tax bracket that allows them to deduct IRA contributions can do so until April 18, 2023, to reduce their tax liability for the year 2024. Roth IRAs have more forgiving income requirements, so if you don’t qualify for a traditional IRA, you may want to open one instead.

Don’t just reinvest the proceeds from maturing bonds or certificates of deposit; a lower price may be available elsewhere. For the first time in years, investors can get respectable returns on their investments in money market accounts, bank CDs, and bonds. You can do better than that, though.

Individuals in their fifties and beyond are ideal candidates for fixed-rate annuities, which offer a better rate of return than certificates of deposit (CDs). The reason is that there is a 10% early withdrawal penalty imposed by the IRS on any interest earnings taken out of an annuity before the holder reaches age 59 and 1/2.

This annuity, which acts like a bank CD, goes by several names. Similar to a certificate of deposit (CD), it offers a fixed interest rate for a specified period (two to ten years). Unlike interest from a CD, interest from an annuity is tax-deferred until it is withdrawn.

Midway through January saw the best three-year CD paying 4.44%, but more excellent rates were available on two- and five-year fixed annuities. The FDIC does not protect pensions, but highly regulated life insurance providers support them, and state guaranty associations offer supplemental security. Before you buy insurance from a company, see what AM Best has to say about them.

The stock market may have seen prolonged growth before 2024, but your asset allocation goals may need to be corrected. Imagine you choose to invest half of your money in stocks and stock funds (equities) and the other half in bonds (fixed income) (bonds, CDs, fixed annuities, money markets, and similar instruments). You are still reasonably well-diversified, with 65% in stocks and 35% in bonds following last year’s drop.
It’s time to start reallocating resources, so they’re split evenly again.

Gains in tax-deferred retirement accounts, annuities, and life insurance policies are taxed once the money is withdrawn, making it easier to reinvest. Some people have sufficient savings in their retirement accounts to cover the cost of the entire rebalancing process. Remember that asset allocation in a single budget is less important than the overall allocation.

Keep tax planning in mind if rebalancing your taxable investments becomes necessary. For instance, if you’ve got unrealized losses, you can sell some losers to balance out the profits from your winners. You should talk to a financial counselor or tax expert if you’re rebalancing a significant amount of taxable money.

Deferred income annuities(opens in new tab) are a type of longevity annuity that allows you to turn a lump sum into a stream of payments that begin on a future date of your choosing. The masses picked the lifetime income option, and you will receive a steady stream of money for as long as you live.

When you pass away, the money from your retirement accounts, life insurance, and annuities will go to the people you’ve designated as beneficiaries. Changing your beneficiaries may be necessary after significant life events like marriage, divorce, having children or grandchildren, or losing a loved one.

In most situations, a spouse is the primary beneficiary of a marital estate, with any children being secondary. If you’ve been divorced and remarried but still have your ex-spouse listed as the beneficiary, your new spouse may be in for a harsh awakening when you pass away.