*This post highlights Chapter 8 from Mike’s book, Achieving Financial Fulfillment.
We know that regularly maintained vehicles are more reliable, more durable, and have a higher resale value. What about your financial plans? Life changes and so may your financial goals. Monitor your progress at least once a year.
Here is what to include in a checkup or an annual review of your finances:
- Review your initial planning assumptions and make any necessary adjustments.
- Review any upcoming financial decisions.
- Evaluate your overall asset allocation between stocks and bonds to determine whether rebalancing is needed to restore your original target percentages.
- Evaluate your specific investments to determine whether they are performing in line with expectations and appropriate benchmarks. Make adjustments if necessary.
- Evaluate your income tax return to look for deductions or ways to minimize taxes for the following year.
- Maximize retirement account contributions where possible to reduce income taxes or consider funding Roth accounts to allow assets to receive tax-free growth.
- Track your spending habits to determine whether you are living within your means and not negatively impacting your long-term financial plans.
- Make sure your insurance and estate documents are up to date to reflect any changes in family dynamics and new or updated assets.
- Coordinate your financial plan with all members of your professional team, including accountants, lawyers, and insurance providers, as necessary.
- Communicate your plans to family members or others who may be involved at some point to ensure your intentions are known.
Your personal situation deserves specific planning and evaluation. Therefore, this is not a comprehensive list that fits every need. But as you can see, there is a lot to evaluate on a regular basis to keep up with your financial plans to ensure you reach your goals!
If a list of ten items to review seems overwhelming, just focus on these two things:
- Save more – If you are working, try to put 1% or 2% more of your income into savings or a retirement account. The easiest way to save on a regular basis is if you don’t have to think about it or you don’t see it happen. Also, do your best to maintain an emergency fund because you never know when your car may need a costly repair or an appliance in your home will need to be replaced.
- Spend less - Most everyday items have high, medium, and low-cost alternatives. Be practical most of the time, and treat yourself once in a while.
A little bit of effort can go a long way in helping yourself in the future. (I’m a big fan of future me!) It can also help to think about where you want to be or what you want to accomplish by this time next year. So rather than cleaning up a bad habit or promising yourself you’ll start a good one, lay out a plan and make it happen! You’ll be on your way to better financial shape if you can live within your means.
Important Age Milestones in Retirement and Why Your Half Birthday Really Does Matter
59½? 70½ ? 73? How does the IRS come up with these? If you ask several young children how old they are, I’ll bet at least one of them will say their age plus a half: “I’m five and a half!” They say it with pride, so you don’t forget it! Once you get past age 21 there is a lull in significant birthday milestones. As you’ll see, half birthdays do come into play as you get older and closer to retirement.
Age 50: Eligible for IRA catch-up provisions. In 2024, you can put an extra $1,000 a year into an IRA or Roth IRA if otherwise eligible ($8,000 total) and an additional $7,500 into a 401(k) plan ($30,500 total). Also, be on the look-out for AARP mailings and discounts to start!
Age 55: Possibly take penalty-free 401(k) withdrawals. The 10% early withdrawal penalty is lifted in cases where you leave a job after 55 and the 401(k) was from your most recent employer. But just because you can avoid a penalty doesn’t mean this is necessarily a good idea for everyone. Also, you can contribute more to a Health Savings Account (HSA) once you get to this milestone.
Age 59 ½: No more 10% early withdrawal penalty for IRAs and 401(k)s. Withdrawals are still taxed as income, but the extra penalty goes away. Again, you should seek advice to determine whether this makes sense for you. Roth IRA contributions also reach one of their two flag posts that make withdrawals of contributions tax-free (the other is the account being open for 5 years). Be careful here because a separate “5-year rule” applies to each Roth IRA conversion you may have done.
Age 60: Get big discounts. Take advantage of “senior” pricing at shops, restaurants, and entertainment!
Age 62: First eligibility for Social Security. Drawing early at age 62 means you’ll receive reduced benefits. If you continue to work past this age, you probably want to delay benefits because they could be reduced due to a wage limit. This goes away at full retirement age (see 66–67).
Age 65: Eligible for Medicare coverage. At this age, Medicare becomes the primary medical insurance for many people.
Age 66 – 67: Reach Social Security’s “Full Retirement Age.”
Caps on what you can earn from a job are removed.
Age 70: Receive maximum Social Security benefits. The Delayed Retirement Credit is an increase of about 8% per year in earnings. If you waited this long to draw, your monthly benefit will be much larger than your age 62 amount would have been. However, you’ll need to stick around for several more years to end up receiving more benefits than if you drew early.
Age 70½: Qualified Charitable Distributions (QCDs). Each individual can distribute up to $100,000 per year directly from their IRA custodian to a qualified public 501(c)(3) charity. Normally IRA withdrawals are taxable, so this helps reduce IRA balances used for future RMD calculations. After age 73, QCDs are even more effective because they satisfy your RMD and lower your Adjusted Gross Income (separate from using charitable gifts for itemized deductions). This may save you money on Medicare premiums and lower the taxable amount of your Social Security. There is no lower dollar limit, so even if you typically gift $1,000 or less, it all helps!
Age 73: Required Minimum Distributions must begin from most retirement accounts. The pre-tax deferral and compounding party that may have begun more than 50 years ago, when you first started working and saving, begins to wind down as you start to draw from retirement accounts.
Maybe now you can look forward to your next milestone birthday!