We’re only a few weeks away from 2025, so now is the perfect time to start thinking about how to prepare your finances for the year ahead!
Whether you’re in the middle of your career and just starting to think about retirement or you’re only a few years away from that last day on the job, a plan is essential. Making the right financial moves now can help secure your future, no matter how many years you have until retirement.
Are you ready to start 2025 off strong? Follow these steps to get your ducks in a row and feel confident you’re on track for your financial goals.
Conduct a Retirement Readiness Check
Before you can make (or update) your retirement plans, you need to know exactly where your finances stand. Now’s a great time to assess your current financial situation to see whether it’s aligned with your retirement goals.
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- For Mid-Life Professionals: Start by looking at your current retirement accounts to see how much you’ve saved. Then, compare that number to your estimated (or desired) retirement income to see how much more you need to save in the years you have left before you want to retire. Are you on track to meet your goal? If not, make sure you’re taking full advantage of your employer’s retirement benefits and maximizing your contributions.
- For Those Nearing Retirement: If you’re only a few years away from retirement, take a deep dive into your retirement portfolio. Evaluate your savings, planned distributions, and any additional income sources, like Social Security benefits or pensions. Run the numbers to make sure your savings will cover your desired retirement lifestyle, or consider an alternative, like being semi-retired for a few years.
If you’re not sure how much you need to save for retirement, consider talking to a financial planner. They can help you forecast your retirement expenses, analyze your current savings plan, and create a feasible plan to reach your goals.
Maximize Retirement Contributions
No matter where you are in your career, it’s important to save for retirement. The closer you are to that age, however, the more crucial it is to ensure you’re saving as much as possible.
Start by checking the IRS’s 2025 retirement contribution limits — if you have a traditional 401(k), you can contribute up to $23,500 next year. The limit for an IRA is $7,000.
If you’re not currently maxing out your contributions, consider putting more toward your retirement savings in 2025. If you’re 50 or older, you can make catch-up contributions to save more.
If you’re between 50 and 59, you can make catch-up contributions to your 401(k) up to $7,500, bringing your total contribution limit for 2025 to $31,000. If you’re between 60 and 63, you can make $11,250 worth of catch-up contributions.
A financial planner can help you figure out if catch-up contributions are necessary for you to reach your retirement goal.
Mitigate Risk in Your Portfolio
Are you comfortable with the level of risk in your retirement portfolio? Generally, you should reduce your level of risk as you get closer to retirement. Consider adjusting your risk as you move into 2025.
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- For Mid-Life Professionals: If you’re still a decade or two away from retirement, you may want to prioritize growth in your portfolio. Diversifying your assets can help find a balance between growth potential and risk.
- For Those Nearing Retirement: As you get close to retirement, you may want to lower risk in your portfolio to protect your savings from market fluctuations. However, you may be risk-tolerant and willing to maintain or even increase your investment risk.
It’s often hard to find the best balance between risk and growth potential, especially when the market is unpredictable. A financial planner can help you find the right mix of assets based on your retirement plans and risk tolerance.
Review Your Health and Long-Term Care Plans
For most people, healthcare costs are some of the most significant expenses during retirement. While it’s impossible to predict exactly how much you’ll need to pay for care, it’s crucial to prepare as much as possible with good health insurance and long-term care plans.
If you have a health savings account (HSA), consider maximizing your contributions. HSAs offer excellent tax advantages, and you can sometimes use the money you save to cover medical costs throughout retirement.
Do you have long-term care insurance? If not, you might want to consider adding this type of protection, especially if you’re close to retirement. Premiums generally increase as you get older, so getting coverage earlier may help you save money in the long run.
Create a Tax Strategy for Retirement Withdrawals
Another vital aspect of your retirement plan is preparing for taxes. Making a strategic plan for retirement withdrawal can help lower your tax liability and make your savings last longer.
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- For Mid-Life Professionals: Speak with a Certified Financial Planner® to see how they’d recommend splitting your retirement savings between tax-advantaged (such as a 401(k)) and taxable (such as a Roth IRA) accounts. Using a taxable account now can give you a source of tax-free income during retirement. However, there are nuances to everyone’s financial situation, which is why speaking to a CFP® professional is ideal!
- For Those Nearing Retirement: If you’re planning to enter retirement in 2025, now is the time to evaluate your income needs and your withdrawal limits for your accounts. Consider how much you need to bring in once your work income has ended and how much money you can draw on. This is also a good time to work with a financial planner and a CPA to create a tax-efficient plan for your withdrawals.
Review and Update Your Estate Plan
It can be difficult to think about the end of your retirement, but estate planning is vital. Putting off this task can make things difficult for your heirs and give the government a bigger say in what happens to your assets after you pass away. Even if you don’t have children, estate planning is still crucial.
Start with the essential documents: last will and testament, power of attorney, and healthcare instructions. If your financial planner recommends a trust, you can set that up as well.
Even if retirement is decades away, it’s never too early to start estate planning. Every year, we recommend that you review your estate plan and beneficiaries to ensure they still align with your wishes.
Get Expert Financial Guidance for 2025 and Beyond
The new year is a great time to review your financial plans and make any necessary changes. If you’re still in the beginning or middle of your career, focus on saving as much as possible into a diversified portfolio. As you get closer to retirement, you can make catch-up contributions and adjust your portfolio to minimize risk.
No matter how old you are, planning for retirement can be complicated. But it’s less overwhelming when you have an expert on your side. Here at Guiding Wealth, we are dedicated to helping every client establish (and stick to) their ideal retirement plan.
We’ll work with you to identify your retirement goals and evaluate your current savings strategy. Then, we’ll create a comprehensive financial plan to help you stay on track. We can also help you with estate planning, so you can feel confident you’re ready for whatever the future holds. To get started, schedule a consultation.