UPDATE: As the year draws to a close, retirees face crucial financial decisions that could significantly impact their portfolios and tax situations. Experts urge immediate action to ensure financial stability and optimize returns before the end of the year.
Developing now: Retirees must reassess their spending rates, healthcare coverage, and charitable giving strategies, with key deadlines approaching. With only a few weeks left in 2023, here’s what you need to do NOW.
1. Revisit Your Spending Rate: As you prepare for 2025, calculate your withdrawal rate by dividing your portfolio balance by your expected spending, including taxes. The traditional 4% guideline serves as a solid foundation for new retirees. However, data from 2024 retirement spending research indicates that those further along in retirement can safely withdraw nearly 7% over a 15-year horizon.
2. Open Enrollment for Medicare: The Medicare open enrollment period is active until December 7. Take this opportunity to assess your healthcare coverage, including prescription drug plans and Medicare Advantage options. This review could lead to substantial savings and better healthcare management.
3. Assess Portfolio Asset Allocation: Utilize tools such as the X-Ray functionality on Morningstar.com to evaluate your portfolio’s asset allocation. Identify any categories that have exceeded target allocations and consider adjusting to improve balance and meet required minimum distributions (RMDs).
4. Required Minimum Distributions: If you are age 73 or older, the deadline for taking your RMDs from tax-deferred accounts is December 31. This is also an ideal time to clean up your portfolio by selling underperforming stocks to fulfill RMD requirements.
5. Build Liquid Reserves: Ensure that you have cash reserves equal to at least six months’ worth of withdrawals, and no more than two years. This safety net can prevent forced sales of long-term assets during market downturns, providing peace of mind as you navigate retirement.
6. Charitable Giving Strategies: For those over age 70½, consider using Qualified Charitable Distributions (QCD) to donate appreciated assets directly from your IRA, thereby avoiding taxes on those gains. The QCD limit has increased to $108,000 for 2025—this could satisfy your RMDs while benefiting your favorite charities.
7. Tax-Loss Selling: With stock performance strong this year, the opportunities for tax-loss selling may be limited. However, investors maintaining individual stocks should review their portfolios for any losses that could offset gains and reduce taxable income, particularly if losses exceed gains.
As 2023 wraps up, these essential steps can significantly influence retirees’ financial health moving into the new year. Financial advisors emphasize the importance of timely action to mitigate risks and optimize returns.
What to watch for next: As deadlines approach, retirees are encouraged to consult with financial advisors to tailor their strategies. The decisions made now can shape your financial landscape for years to come. Don’t delay—act today to secure your financial future!
