Why You Should Reevaluate Your Retirement Strategy Now
When it comes to retirement planning, most people are obsessed with reaching a “magic number” — the amount they need to save to retire comfortably. But experts say you should train your eye on a different number: your personal savings rate. They can also help set you up for long-term success with a regular reassessment of your retirement contributions and strategy. These are actionable tips to help you start.
Reassess Where You Are Putting Your Savings Early in the Year
The start of the year is a prime time to take a fresh look at your retirement savings, said Douglas Boneparth, a certified financial planner and founder of Bone Fide Wealth. By doing so, you can:
Capitalize on employer matches: Make sure you are contributing enough to your retirement account so that you are getting the full match from your employer, if available.
Flex your budget: Look at all your monthly expenses to find wiggle room in what you can redirect to a retirement fund.
Get ahead of a potential market change: Having a plan in place beforehand can help you weather any potential market downturn.]
In addition, saving more in your younger years lets your money compound through the years, which adds to your nest egg considerably.
Max Out Your 401(k) Contributions
If you have access to a 401(k) plan, review your contribution rate now. According to Mike Shamrell, vice president of thought leadership at Fidelity, the importance of:
Employer match maximization: Many employers offer a contribution match, which is basically free money.
Incremental increases: Even a 1% increase in your contribution rate can add up over time without drastically reducing your take-home pay.
Fidelity advises saving at least 15% of your pre-tax income each year, including employer contributions. If you’re not sure what your company’s match formula looks like, ask your HR department or 401(k) provider.
Make Contributions to Your IRA for 2024 and 2025
It’s a great time for retirement savers to make contributions to individual retirement accounts (IRAs) for both the current and prior tax year. For 2024, you can contribute up to $7,000 ($8,000 if you’re age 50 or older) until April 15, 2025. The same limits are in place for 2025 contributions, which can be contributed until April 15, 2026. These contributions can also be tax-deductible, depending on your income.
Make Another Look at Your Investment Allocations
After a year of strong market performance broadly, such as the average 11% growth in 401(k) balances seen in 2024, it’s important to reassess your asset allocations. According to Shamrell, “Do this:
Make sure you are properly diversified: Prevent too much exposure to equities, which may have gained too much of a portion.
Look into target date or balanced funds: These funds automatically adjust your portfolio’s risk levels, according to your retirement timeline.
Marguerita Cheng, a certified financial planner and the chief executive of Blue Ocean Global Wealth, suggests you also consider your risk capacity (how much you can afford) and your risk tolerance (how much risk you’re comfortable taking). By understanding your limits, you can help stay steady in the face of market turbulence.
Adjust for Life Changes
For example, marriage, purchasing a house, or having a child are all major life events that can change your retirement aspirations. This allows you to consistently evaluate whether your allocations are in line with your evolving long-term goals. It’s important to stay steady: Research shows that investors who panic-sell during downturns miss out on subsequent bounce-backs.
Final Thoughts
Parsing through your retirement plan isn’t just number crunching; it’s ensuring your prospects match life afterward. Creating a comfortable retirement isn't merely a question of contributing as much as you can, allocating money towards the right investment, and staying the course. Take charge of your financial future by maximizing your savings and start today.
