Mike Zaino, of The Zaino Group, is a Registered Financial Consultant and National Retirement Counselor serving federal and postal employees.
Ah, the end of the year. A time for holiday parties, reflecting on the past 12 months, and, for many of us, making bold declarations about the diet and gym plans we’ll start in January (but probably won’t). But for pre-retirees, the end of the year offers something even more valuable: the perfect window to fine-tune their retirement plans.
Here’s why year-end is a golden opportunity for anyone nearing retirement and a few problems you might run into—along with how you can avoid them.
Tax Planning: Maximize Savings, Minimize Uncle Sam’s Cut
It’s no secret that the IRS takes a chunk of your earnings, but end-of-year planning can help. Pre-retirees can make significant headway in tax planning by maximizing contributions to tax-advantaged accounts such as 401(k)s, IRAs and health savings accounts before the clock strikes midnight Dec. 31.
The key is to ensure you’re contributing enough to reduce taxable income. For example, if you’re under 50, you can contribute up to $23,000 to your 401(k) for 2024. If you’re 50 or older, the government allows you to throw in a little extra with catch-up contributions—up to $7,500 more, for a total of $30,500.
Problem:
You didn’t realize you could contribute more after turning 50 and left that extra $7,500 on the table, which means you’re not reducing your taxable income as much as you could have.
Solution:
Review your contributions now and make sure you’ve maxed out where possible. It’s like getting a tax break for giving yourself money. Why wouldn’t you?
Another tax-related tactic is tax-loss harvesting. If your investments took a dive this year, selling off some losing investments can offset capital gains and lower your tax bill. It’s a classic “make lemonade out of lemons” move.
Employer Benefits: Don’t Leave Free Money On The Table
By the end of the year, many employers offer matching contributions to your retirement accounts, meaning they’ll match your contributions up to a certain percentage. This is essentially free money.
Problem:
You’ve been contributing to your retirement accounts, but not enough to maximize your employer’s match. Let’s say your company matches contributions up to 5%, but you’ve only been contributing 3%. That’s money left on the table.
Solution:
Before year-end, make sure you’ve contributed enough to get the full match from your employer. It’s free money; don’t leave it behind.
And if your employer offers a flexible spending account, remember that most FSAs are “use it or lose it.” If you’ve got funds sitting in your account, check out eligible expenses before the year ends. This is your chance to stock up on contact lenses, get that physical therapy session you’ve been putting off or even buy new prescription glasses.
Investment Rebalancing: Avoid A Lopsided Portfolio
Market fluctuations can throw off your portfolio’s balance, making rebalancing essential.
Problem:
You started the year with a 60/40 stock-to-bond allocation, but after a big stock market rally (or drop), your portfolio is now more like 80/20. That’s more risk than you wanted at this stage in life.
Solution:
The end of the year is a great time to rebalance your portfolio. Rebalancing helps you bring your investments back in line with your intended strategy. Think of it as tightening the screws on your financial future. It’s easy to overlook during the year, but a quick review and some adjustments can bring everything back into balance.
Healthcare And Medicare: Get Ahead Of The Game
If you’re nearing age 65, healthcare is a big topic on your radar—whether you like it or not. This is the time to make decisions about Medicare. The open enrollment period runs from mid-October through early December, which lines up perfectly with your year-end review.
Problem:
You delayed reviewing your healthcare options and now find yourself scrambling to choose the right Medicare plan.
Solution:
Use the last quarter of the year to dig into the different Medicare plans available. Look at your current healthcare needs and how they might evolve in retirement. Take your time and avoid making rushed decisions.
Social Security: Timing Is Everything
When it comes to Social Security, timing is everything. While you can start collecting benefits as early as age 62, your monthly checks will be smaller if you claim before your full retirement age (usually around 66 or 67).
Problem:
You rush to claim Social Security early because you’re excited to stop working, only to later realize that your monthly benefit could’ve been much larger had you waited.
Solution:
Take a deep breath and carefully consider your options. Review your Social Security earnings record at the end of the year to ensure everything’s accurate. If there are errors, now’s the time to fix them—before you start claiming benefits. And if you can afford to wait a few years, delaying Social Security can lead to significantly larger monthly payments.
Budgeting And Cash Flow: Know What You’ll Need
Retirement is a major lifestyle change, and one of the most important things to review at year-end is your cash flow. How much will you really need to maintain your lifestyle in retirement? Now’s the time to assess your current expenses and compare them to what you anticipate spending post-retirement.
Problem:
You’ve saved but haven’t calculated what you’ll need in retirement, and it may fall short.
Solution:
Review your spending, project future expenses and create a retirement budget to adjust savings if needed.
Final Thoughts
While the end of the year brings plenty of holiday distractions, it’s also the perfect time to review your retirement plan and ensure you’re on track for the future. A little attention to detail now can pay off big time when you’re kicking back in your golden years—relaxing without a care in the world (or at least not worrying about your finances).
And hey, that diet you’re planning for January? That’s for next year. Today, let’s focus on securing your retirement.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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