Best Retirement Plans: 7 End of the Year Tips for a Happy Retirement

 Reassess and reallocate for the best retirement plan.Reassess, review and reallocate for the best retirement plans.

The fourth quarter is upon us, which marks the ideal time to start coming up with year-end retirement saving and planning strategies to help beef up your accounts. The best retirement plans are made with the benefit of time and careful consideration. While there are plenty of things you can do to add to your retirement cushion, here are 7 things to consider doing right now:

1. Reassess Your Goals and Expectations

As you age, your goals and expectations for investments should shift.  The conventional wisdom is that you need to be more conservative with your money as you get closer to retirement and/or retire.

However, all of the factors listed above should be considered at year end and be used to make changes to your overall retirement plan.  An online retirement calculator can be a useful exercise to help you take stock and assess your current plans.

It may also be time for you to consider whether or not a financial advisor would be a good addition to help you make the best decisions for now and your financial future.

2. Review This Past Year’s Expenses

As the year nears a close, now is as good a time as ever to look over your expenses over the past 12 months in order to get an idea of how much you’ve spent. This will help you track your yearly expenses for 2015. It’s critical to calculate how much of your savings should be set aside for emergencies such as job loss, disability, death, and so forth. This will allow you to come up with an accurate figure of how large a nest egg you should have, and set a goal to achieve that amount on the coming year.

3. Review Your 401(k) Options

The fourth quarter is the best time to review your options when it comes to your 401(k). It’s the time of year when many companies update their 401(k) investment menus, as new investment options are added and some funds may be replaced with new ones. Many times this coincides with open enrollment for employee benefits, making this an ideal time to review any changes that may have been made, and update your investments as you see fit.

4. Convert Your Traditional IRA Into a Roth IRA

The Roth IRA offers certain benefits that you can’t get through a traditional IRA. The main difference between a traditional IRA and Roth IRA is the role of taxes. While contributions to a traditional IRA are tax-deductible (for those who qualify), you still have to pay taxes on money you withdraw from a traditional IRA account following retirement. The IRS holds a traditional IRA subject to additional taxes if: 1) it’s used to invest in collectibles; 2) excess contributions are made; 3) money is withdrawn early, or; 4) an excess amount accumulates in the account. This means that you would have to be attentive to minimize taxes on the account.

Planning for retirement
What retirement strategies are you using to save for your golden years?

If you own Roth IRA, however, you only have to worry about taxes once – when depositing money into the account. All the profits are then accumulated in a Roth IRA, and all amounts that are withdrawn from the Roth IRA once retirement hits are not subject to taxation. Even if you pass the Roth IRA on to your beneficiaries, it’s still tax-free money.

It’s important to note that it only makes sense to convert a traditional IRA to a Roth IRA if your tax bracket at retirement will be over 30 percent. The Roth IRA doesn’t put you into a higher tax bracket; instead, it can push you into a lower tax bracket because Roth income is non-taxable, an environment that would favor a traditional IRA. If you’re anticipating a high income in retirement, the Roth IRA makes sense. However, if you’ll be making a lower retirement income, you may be better off sticking to a traditional IRA.

5. Rebalancing Your Investment Portfolio

You may have put together an asset allocation strategy that seems perfect for your financial situation, but as the end of the year draws near, you might find that the weighting of each asset class may have changed. Perhaps the market value of every security in your portfolio began earning a different return throughout the course of the year, which caused a weighting change. By rebalancing your investments, you can effectively minimize risk.

Rebalancing essentially involves buying and selling portions of an investment portfolio to bring the weight of each asset class back to its original state. This process will help to maintain the original asset-allocation strategy of the portfolio to help you stick to your investing plan no matter what the market does.

Planning for retirement
The fourth quarter is a great time to look over your finances for retirement savings.

6. Account for Increases in Inflation Rates and Energy Costs

Inflation and a rise in energy costs can make retirement planning very challenging to adjust for. Someone who’s saving and planning for retirement based on this year’s inflation rate of 1.7% might find their capital quickly burning out if energy, food and cost of healthcare increase by a higher margin. While it may not necessarily be likely that the economy in the US will experience an inflation rate of 10% or more for a long period of time in the near future, over the number of years planning for retirement, a couple of such periods of inflation should be accounted for.

Luckily, the effect of inflation in the 4th quarter of 2014 hasn’t been as tough as it has been in previous years, with inflation rates rather muted in September with a stronger dollar and a drop in energy costs. However, it’s important to be vigilant of increases in energy costs and inflation, which are bound to happen. It’s important to ensure that investments grow at least enough to offset any effects of inflation. Some portion of investment portfolios should be kept in growth stocks to ensure that the money being received from these investments each month is able to cover the same amount of goods and services that were bought in the past.

7. Evaluate Medical Insurance Options

The Medicare Open Enrollment period is right now.  It is important to re-evaluate your supplemental Medicare coverage every year. Insurance companies change policies and your health changes too. The National Council on Aging estimates that the average consumer could save $300 or more by reviewing only Part D drug coverage. Additional savings can be found by optimizing other supplemental Medicare policies. Compare your options now.

This list is by no means exhaustive. The strategies you use should be discussed first with a professional financial planner who can help customize the financial strategies that are right for you when planning for retirement.

NewRetirement Planner

Do it yourself retirement planning: easy, comprehensive, reliable

NewRetirement Planner

Take financial wellness into your own hands and do it yourself retirement planning: easy, comprehensive, reliable.

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