5 Things Retirement Savers Should Do at the Start of Each Year | Schwab - Millennium Trust Company

5 Things Retirement Savers Should Do at the Start of Each Year

January 19, 2022
By Millennium Trust

If you are like many retirement savers, the new year brings with it hope and the resolve to save more, invest smarter, and strengthen your retirement security. Whether you are working with an advisor or saving and investing for retirement on your own, consider taking these actions this January.

1. Reassess your long-term financial goals and priorities. This is especially true in 2022, which marks the beginning of the third year of the global pandemic. Covid-19 has changed many Americans’ retirement assumptions. In fact, one recent study showed more than one third of retirement savers say they have changed their target retirement age based on either their changing priorities or recent financial setbacks.

Personal and financial disruptions caused by the pandemic have similarly forced retirement savers to re-examine what they want their retirement to look like and what they think is realistic. Whether you work with an advisor or self-direct your investments, it is imperative to reassess your current retirement strategy so that it continues to be appropriate for your long-term needs.

2. Reconsider your emergency savings needs. If 2020 and 2021 taught us anything, it’s the importance of preparing for the unexpected. Financial emergencies can include everything from health scares to job losses to surprising economic developments, like a rise in inflation.

Because emergency savings is such an essential safety net, consider contributing small amounts on a routine basis from each paycheck to a separate, dedicated account. This will not only leave you better prepared for the unexpected, it will also help keep your retirement savings intact by eliminating a need for early withdrawals.

3. Review your tax-deferred retirement savings account options. The start of the year often brings with it potential bonuses and raises, and with that comes an opportunity to maximize contributions to tax-advantaged retirement accounts. If you work for a company with a 401(k) or other retirement plan, consider contributing enough to take full advantage of its matching offer, if there is one. If you’re already doing that, then consider giving your retirement account a raise at the start of the year by boosting your contribution rate. (See the chart below for the annual contribution limits the IRS has set for the coming year).

Whether you’re eligible for a workplace savings plan or not, consider contributing to an individual retirement account (IRA) if possible. Most individuals can contribute to traditional IRAs as long as they or their spouse receive taxable income (however, whether your contributions are deductible will depend on a variety of factors).

Unlike last year, if you intend on contributing to an IRA for the 2021 tax year, the IRS deadline is April 15, 2022—whether you intend to file for an extension or not.

4. Reevaluate the allocation of your 401(k) and IRA accounts. A well-diversified portfolio will have exposure to a variety of different investments including stocks, bonds, alternative assets, and cash—and each asset produces vastly different returns every year.  Over time, this variability in returns could alter the long-term mix of stocks, bonds, and alternative assets that you initially established, potentially leading to unintentionally over- or underweighting some asset categories. If you want to be mindful of your asset allocation, financial professionals advise routine reviews. It helps keep your asset allocation across all your invested accounts aligned with your goals.

5. Reunite with any old 401(k) accounts: Whether due to the strong labor market or the Great Resignation—where workers have been quitting their jobs at a record pace—there’s a good chance you may have switched jobs. If so, do not forget about the 401(k) accounts you may have left behind.

While your prior employer may initially allow you to keep those accounts with them, they may also eventually decide to automatically roll you out of their 401(k) and into a Safe Harbor IRA. For this reason, you may want to consider taking the initiative, and rolling over your old 401(k)s to the independent custodian of your choosing before that happens. (You can verify that your old 401(k) plan hasn’t already been rolled over by using a retirement fund locator).

Having a Self-Directed IRA, enables you to take charge of your investment choices, broadening your opportunities beyond mutual funds, to invest in individual securities and alternative assets like real estate, private equity and precious metals. The increased flexibility can tighten the alignment between your changing goals and the investments you make to achieve them. And that’s one of the most effective retirement resolutions you can make—remaining proactive about saving for the future you hope to experience.

The material in this Blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Millennium Trust Company performs the duties of a directed custodian, and as such does not offer or sell investments or provide investment, legal, or tax advice.

Please select at least 1 category *