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

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

December 9, 2022
By Millennium Trust

Along with a new year come resolutions. And if you are like many Americans, after resolving to exercise more, eat healthier, and spend more time with loved ones, you may also plan to save regularly and spend smarter in 2023.

Whether you save and invest on your own or work with an advisor, here are some quick actions you can take to help you get that “saving” resolution confidently crossed off your list this year.

#1: Reassess your long-term financial goals and priorities. This is especially important in 2023. After nearly three years of living with a global pandemic, a volatile stock market, and in the face of a potential recession, retirement plans have shifted for many Americans. Northwestern Mutual’s 2022 Planning and Progress Study found more than 40% of Americans think they won’t be financially ready to retire on time. On average, the respondents say they now plan to work until the age of 64, up from 62.6 last year. Outliving savings and keeping up with rising and unexpected costs were the primary reasons cited.

Personal and financial disruptions caused by the pandemic, followed by a wave of inflation during 2022, require retirement savers to re-examine how they can realistically achieve the retirement they hope for. Whether you work with an advisor or self-direct your investments, consider reassessing your current strategy annually to make sure it reflects your long-term goals.

#2: Reconsider your emergency savings needs. If the past few years taught us anything, it’s the importance of preparing for the unexpected. Financial emergencies can include everything from health scares and job losses to surprising economic developments, like the 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 account. While you can easily set up a fund yourself, it’s becoming more common for employers to offer emergency savings funds as part of their benefits package.

Having an emergency savings fund will not only leave you better prepared for the unexpected, it can also help keep your retirement savings intact by avoiding the expense of requesting a loan or the need for an early 401(k) withdrawal and the taxes and penalties that may accompany it.

#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 any opportunity for matched contributions. 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. Even minor additions can add up over time. The chart below has the annual contribution limits the IRS has set for the coming year.

2023 Limit for Retirement Plan Contribution

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).

If you intend on contributing to an IRA for the 2022 tax year, the IRS deadline is April 18, 2023 — 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 — each type of asset can produce vastly different returns each year. Over time, this variability in returns could alter the long-term mix of stocks, bonds, and alternative assets that you initially established. When this happens, it can lead to unintentionally over or underweighting your exposure to certain types of investments. For this reason, financial professionals advise reviewing your investment accounts at least once a year to keep them aligned with your goals.

#5. Reunite with any old 401(k) accounts. Whether due to the strong labor market or simply the nature of your career path there’s a chance you may have switched jobs several times by now. 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 could 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 your current employer — if its plan allows that — to your existing IRA, or to the independent custodian of your choosing by establishing a Self-Directed IRA.

Having a Self-Directed IRA enables you to take charge of your investment choices and 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.

Taking time each year to proactively reassess and refresh how you are saving for your future can literally be one of the most rewarding resolutions you can make. Let us know how we can help you set up a Self Directed IRA.

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.

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