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Retirement Planning at Year-End

Retirement Planning at Year-End: How to Ensure a Secure Financial Future

“As the year draws to a close, now is the perfect time to closely examine your retirement plan,” says Nicholas Jembelis, Senior Vice President of David Lerner Associates. “Whether you’re just starting your retirement journey or you’re a seasoned saver, year-end is an excellent opportunity to evaluate your financial standing and make crucial decisions that will impact your retirement security.”

Here are some strategies for maximizing retirement account contributions and optimizing withdrawals to help you build a secure financial future.

Maximizing Retirement Account Contributions

Contribute to Your 401(k) and IRA: One of the most effective ways to boost your retirement savings is to maximize contributions to your 401(k) and IRA.

For 2023, the 401(k) contribution limit for employees is $22,500, or $30,000 if you are age 50 or older. This amount is up modestly from 2022 when the individual 401(k) contribution limit was $20,500, or $27,000 for employees who were 50 or older.

For an IRA, the 2023 limit is $6,500 ($7,500 if you’re age 50 or older).

Consider a Roth IRA Conversion: Converting a traditional IRA to a Roth IRA can be a savvy move, especially if you anticipate being in a higher tax bracket during retirement. While this will result in an immediate tax bill, Roth IRAs offer tax-free withdrawals in retirement.

Take Advantage of Employer Matches: If your employer offers a 401(k) match, make sure you contribute enough to receive the full match. This is essentially free money that will grow tax-deferred in your retirement account.

Health Savings Account (HSA) Contributions: If you have a high-deductible health insurance plan, contribute to an HSA. HSA contributions are tax-deductible, and the money can be used for qualified medical expenses in retirement.

Catch-Up Contributions: If you are 50 or older, be sure to take advantage of catch-up contributions available in many retirement accounts. These additional contributions can significantly boost your retirement savings.

Review Your Investment Allocations: Ensure that your investments align with your risk tolerance and long-term goals. Consider rebalancing your portfolio to maintain a diversified and suitable mix of assets.

Optimizing Withdrawals

Create a Retirement Income Plan: Developing a comprehensive retirement income plan is crucial. Determine your expected expenses in retirement, including healthcare, housing, and leisure activities. Then, create a plan for generating income from various sources, such as Social Security, pensions, and savings accounts.

Consider Tax-Efficient Withdrawals: Carefully plan how you will withdraw funds from your retirement accounts. Consider taking money from taxable accounts first and letting tax-deferred accounts grow for as long as possible. This strategy can reduce your tax burden in retirement.

Emergency Fund for Retirees: Make sure you have an emergency fund set aside for unexpected expenses in retirement. This will help prevent you from dipping into your retirement accounts prematurely.

Healthcare Planning: Healthcare costs can be a significant expense in retirement. Consider Medicare, long-term care insurance, and other health-related factors when planning your retirement budget.

Review Required Minimum Distributions (RMDs): Be aware of RMD rules for retirement accounts like 401(k)s and traditional IRAs. Starting at age 72, you are required to withdraw a minimum amount each year. Failure to do so can result in hefty penalties.

General Year-End Retirement Planning Tips

  • Reevaluate Your Financial Goals: Year-end is an excellent time to reassess your retirement goals. Have your circumstances or aspirations changed? Adjust your savings and investment strategies accordingly.
  • Review Beneficiary Designations: Ensure that your beneficiary designations on retirement accounts and insurance policies are up to date and reflect your current wishes.
  • Estate Planning: Review your estate plan, including your will, trust, and power of attorney. It’s crucial to have these documents in place to protect your assets and ensure your wishes are carried out.
  • Consult a Financial Advisor: Consider seeking advice from a qualified financial advisor who specializes in retirement planning. They can provide personalized guidance tailored to your unique financial situation.

Effective year-end retirement planning is essential for securing a comfortable and financially stable future. However, it’s essential to approach your retirement planning holistically, considering your overall financial picture and long-term goals. By following the strategies outlined in this comprehensive guide, you can take significant steps toward building a secure financial future that allows you to enjoy your retirement to the fullest.

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

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