Retirement Planning - 2023 Year-End Checklist - SAVE, INVEST AND RETIRE (2024)

Retirement Planning - 2023 Year-End Checklist - SAVE, INVEST AND RETIRE (1)

It is hard to believe that the new 2024 is around the corner! When it comes to finances, 2023 was a challenging year. There is no question the US economic outlook has improved throughout 2023 but it does not necessarily mean the economy is in a clear heading to 2024.

With high inflation, volatile stock markets, and an uncertain future due to the wars in the Middle East and Ukraine you might be worried about the cost of your retirement.

But the most important lesson I have learned from previous years is that it pays to be prepared.

As 2023 comes to an end, I want you to make sure that you take some time and complete your year-end retirement planning checklist.

#1: Set a target retirement age.

Retirement is the one common financial goal we all share. We all need to plan for the day when we can no longer work or are just ready to retire.

The target date is the year closest to the year you plan to retire. Age 65 used to be the magic number, the age at which most people retire. Yet that golden age has changed. Many people are working longer. Even though they may want to retire, it is not always possible because they do not have enough money to retire.

Take some time to set a realistic target retirement date. Based on your estimated retirement income and expenses, you can plan your own retirement strategy.

Looking at your target retirement date and retirement income, you can determine if you have enough money saved for the next 20 to 30 years. If it is not enough for a comfortable retirement, move the date and save more in your retirement funds.

Just remember that where you live and how much you can afford to spend in retirement will impact your retirement lifestyle.

#2: Look at your spending.

The end of the year is a great time to look at your personal spending and see where your money is going. With many people still working remotely, there is a good chance your spending habits have changed.

How did you do this year? Have you tracked your spending against your budget? Did you get a full picture of your finances and know how much money you have saved (or not) in 2023?

If you have struggled this year, decide how to improve your financial situation for the next year. Are there debts you should be making a priority to pay off? Look at your budget and decide if there were parts that were difficult to stick to.

Look at your credit card and bank statements and see what expenses could be avoided this year and plan to cut them in the next year.

Keep in mind that balancing your income with your spending is the key to saving more money.

Make sure you have a budget set up for the next year and decide on how much money you need to save in 2024 to meet your retirement goals.

#3: Calculate how much is your nest egg.

Do you know how you are going to pay for your retirement years?

When you are near retirement, it is important to know how much money you will need to live comfortably for the rest of your life. If you still have no idea how much money you will need, look at your current expenses and then evaluate how they might change in the future.

#4: Estimate your retirement income.

In my year-end review, I always find time to look at our future retirement income.

When you are working, you typically have a single employer and a single source of income – your salary. In retirement, everyone has different sources of income – Social Security, pension, part-time job, investments, and retirement savings (401k, IRA, Roth IRA, Roth 401k).

I usually look at our current Social Security, retirement, and investment funds statements to get a clear picture of our potential retirement income. I wanted to make sure that we are on track to our retirement goals and have enough money to cover our living expenses when we stop working.

To make your assets last through the next 20 or 30 years, use the rule of thumb to withdraw 4 percent of your retirement money annually.

For example, if you have $500,000 in retirement funds, you can spend roughly $20,000 ($500,000 x 0.04) per year when you retire. Add this number to your Social Security, pension, and other savings, and calculate if it is enough to support the retirement of your dreams.

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#5: Check your readiness for unexpected expenses.

Another important key factor in any solid financial plan is having enough savings to fall back on in an emergency. To be prepared, put it on your checklist to have two funds – a rainy-day fund and an emergency fund.

Typically, a rainy-day fund is smaller, up to $2,500 for smaller expenses. An emergency fund can be as much as 9 or 12 months of living expenses – $10,000 to $50,000 or more depending on your expenses.

Whichever way you build your financial cushion, be sure you do it. There is no better way to have peace of mind than knowing you have funds to cover expenses when you need them.

#6: Review your progress on paying down debt.

The end of the year is a great time to sit down and check your progress on paying down debt.

Ideally, you should be entering retirement debt-free, but in the real world that is not always achievable.

So, it may be okay for you to retire before you pay off your big debt like a mortgage, car, and student loans. Just make sure you understand the implications of retiring with debt because big withdrawals from retirement funds could push you into a higher tax bracket.

Yet, if you have several years before retirement, try to reduce your debt so you will have more money available for your lifestyle in retirement.

Credit cards and personal loan debt. When it comes to debt, plan to pay off high-interest rates debt first. The average credit card interest rate has increased in 2023. According to Forbes, the average credit card interest rate was 27.81 % in November 2023 which is higher than 2022.

#7: Look at your savings and set goals for the next year.

Did you spend less or more money this year?

Did you spend less money on eating out, vacations, or activities? Did you buy less gas because you worked remotely? If yes, stash those funds into retirement savings.

If you are still working, try to boost your savings rate. It is never too late to increase the size of your nest egg. If you are in your early 50s, you still have close to 15 years of working to save for your retirement.

You should save at least 15 % of your gross income in retirement accounts such as 401(k), IRA, Roth IRA, or Roth 401(k).

A key factor in any retirement plan is having enough savings to last for the next 20 to 30 years.

#8: Review your asset allocation and simplify your portfolio.

As you are getting closer to retirement, it is important to have an accurate picture of your complete investment portfolio.

If your portfolio is spread out among several investment companies, it will become difficult to keep track of all that information. Think about consolidating all your accounts in one place like Vanguard. So, you will get simplified reporting, low costs, and low fees.

The financial markets have modest growth this year. The investors are talking about a new bull market led by AI technology. Take the opportunity to review your asset allocation and make sure your portfolio is diversified and invested for growth. You should have a mix of stocks, bonds, mutual funds, and other assets that fit your retirement goals.

The important thing to remember is that a well-balanced portfolio will help you weather market downturns. Also, it will generate a retirement income to cover your living expenses when you are not working.

It can be tempting to stay away from stocks to reduce the risk of losing money in your retirement funds. But stocks provide growth and investing in growth is important. If you retire at 65 and spend 20 years in retirement, you need to have enough growth in your portfolio to make money last that long.

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#9: Keep will and trusts up to date.

Another important part of your year-end retirement checklist is the status of your will and/ or revocable living trust.

Keep them up to date and make sure you have suitable executors, trustees, and guardians in place. Additionally, you will want to make sure your list of beneficiaries is up to date as well. If you have welcomed a grandchild to the family do not forget to add his/her name to the list. Also, if there has been a change in the family such as a marriage, divorce, or death, make sure to update your beneficiary list.

As you work through your year-end financial checklist, do not forget to review your account beneficiary names. Since these names override your will, it is important to ensure they are accurate.

The following types of accounts typically have beneficiary names:

Retirement accounts, including IRAs, 401(k)s, and other retirement savings accounts.
Life insurance policies that pay a death benefit.

#10: Set financial goals for the New Year.

The final item on your 2023 year-end retirement planning checklist is to review your financial goals and set new intentions for 2024.

Keep in mind that setting and reviewing goals is an ongoing process. It helps to stay on track toward your financial and life aspirations. The end of the year is an ideal time for reflection, re-evaluation, and strategic planning.

Here are a few questions to answer before you start planning for 2024:

Do you know how much money you need to retire? What are you going to do about high inflation? How is it going to affect your retirement income?

How much will it cost to help your parent’s long-term care needs, pay for your healthcare in retirement, or pay for the vacation you really want?

Maybe none of that applies to you today but you want to know how to project into the future. You must know how much you will need to live the life you want in retirement.