UPDATE: As the year-end approaches, retirees are urged to finalize crucial financial checklist items before the December 31 deadline. With open enrollment for Medicare ending on December 7, 2023, now is the time to reassess healthcare coverage and portfolio strategies to secure financial stability in 2024.
Retirees should start by evaluating their spending rates. To determine if your portfolio is on track, divide your starting portfolio balance for 2025 by your expected expenditures, including taxes. The commonly used 4% withdrawal rate serves as a solid baseline, but new findings suggest that retirees further along in their journey could safely increase their withdrawal percentage to nearly 7% if they have a shorter spending horizon.
Healthcare coverage demands immediate attention during Medicare’s open enrollment, allowing you to review prescription drug (Part D) plans and Medicare Advantage options. Missing the December 7 deadline could leave you exposed to inadequate coverage for the upcoming year.
Next, assess your portfolio’s asset allocation using tools like Morningstar’s X-Ray functionality. Compare your current allocations to your target and identify any discrepancies. If certain categories, especially U.S. stocks, are overrepresented, consider reallocating to meet required minimum distributions (RMDs) or to support charitable giving.
For those aged 73 and older, the deadline for taking RMDs is fast approaching. By December 31, ensure you have met your distribution requirements to avoid hefty penalties. Consider using RMDs to clean up your portfolio, especially if you have underperforming stocks that require monitoring.
It’s essential to have a cash reserve that covers six months to two years of withdrawals. This buffer protects against market downturns, such as the volatility seen in 2022. Utilize your RMDs to replenish this cash reserve or determine which accounts to withdraw from based on tax efficiency.
Charitable giving also plays a crucial role in year-end financial planning. If you typically donate around this time, explore using qualified charitable distributions (QCDs). If you’re over 70½, you can transfer appreciated assets from your IRA without incurring taxes, with the QCD limit now increased to $108,000 for 2025. These contributions can also satisfy your RMDs.
In the current stock market climate, tax-loss selling may not be as beneficial as in previous years due to strong performance. However, investors can still find opportunities by realizing losses to offset capital gains or reduce ordinary income by up to $3,000.
Retirees are advised to act swiftly on these financial strategies as the year winds down. These steps are vital for ensuring financial health and stability as we transition into 2024. Share this urgent checklist with fellow retirees to help them navigate their year-end financial planning.
