By Matt D’Amico, CFP®
The year is half over. For many, it’s the season for summer vacations, family gatherings, and perhaps a moment to catch your breath. But amidst the mid-year hustle, it’s also a great opportunity to pause and conduct a vital check-up on your retirement plan. Just as you’d review your business’s performance or your health, a mid-year financial planning review confirms you’re still aligned with your long-term retirement dreams.
How to Reassess Your Retirement Income Strategy at Mid-Year
Your retirement income strategy isn’t a “set it and forget it” plan; it’s a living document that needs regular attention. A mid-year review offers the chance to see if you’re still on course or if adjustments are needed.
Start by revisiting your initial retirement income goals. How much do you anticipate needing per month or year in retirement?
Now compare your current savings rate and projected portfolio growth against those goals. Are you contributing enough to your 401(k), IRA, or other retirement vehicles? Have there been any significant life changes like a new job, a pay raise, or a major expense?
If you’re already in retirement, this review is equally critical.
Are your current withdrawal rates sustainable? Are you drawing from the right accounts to optimize your tax situation? Look at your spending over the first half of the year. Is it in line with your budget?
This reassessment can verify that your current financial trajectory is still heading toward your desired retirement destination.
Financial Planning Adjustments: Inflation, Lifestyle Changes, and Market Performance
Life is dynamic, and your retirement plan needs to be too. A mid-year review allows you to factor in shifts that can significantly impact your financial future:
- Inflation: The silent wealth killer. While we all hope for stable prices, recent years have reminded us that inflation can erode purchasing power. If inflation runs higher than anticipated, your projected retirement income might not stretch as far. Consider whether your investment strategy is adequately diversified to potentially outpace inflation, or if you need to increase your savings rate to compensate.
- Lifestyle changes: Has your desired retirement lifestyle shifted? Perhaps you’ve developed a new passion for international travel or, conversely, decided you prefer a simpler life closer to home. These changes directly impact your anticipated expenses. Similarly, health changes, caregiving responsibilities, or even changes in family structure (like a child moving back home) can alter your financial needs.
- Market performance: While it’s essential not to panic during downturns or get overly exuberant during booms, it’s wise to assess how market performance has impacted your portfolio’s value. If your portfolio has grown significantly, you might be ahead of schedule. If it’s underperformed, you might need to adjust your savings rate or reevaluate your asset allocation to align with your risk tolerance and time horizon. This doesn’t mean making drastic changes based on short-term movements but, rather, verifying your long-term strategy remains sound.
Identifying Tax-Saving Opportunities Before Year-End
The mid-year mark is also a perfect time to identify and act on tax-saving opportunities before the clock runs out on December 31st. Proactive tax planning can significantly boost your retirement savings.
- Optimize retirement contributions: If you haven’t already, review your contributions to tax-incentivized accounts like your 401(k), traditional IRA, or Roth IRA. If you have extra cash flow in the second half of the year, consider increasing your contributions to hit the annual limits. Every dollar contributed pre-tax reduces your current taxable income, and Roth contributions grow tax-free.
- Harvest tax losses (or gains): If you have investments in taxable accounts, consider tax-loss harvesting. If some investments are down, selling them at a loss can offset capital gains and even a limited amount of ordinary income. On the other hand, if you have gains, you might strategically sell them in a year when your overall income is lower to mitigate the tax impact.
- Health savings accounts (HSAs): For those with high-deductible health plans, contributing to an HSA is a triple-tax bonus: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. If you can afford to pay for current medical costs out-of-pocket, letting your HSA funds grow untouched for retirement can be incredibly powerful.
- Roth conversions: If you anticipate being in a lower tax bracket now than in retirement, a Roth conversion of pre-tax IRA funds could be helpful. Although you pay taxes on the converted amount now, future qualified withdrawals are tax-free. A mid-year review helps assess if your current income makes a partial conversion viable.
- Donor-advised funds (DAFs) or charitable contributions: If philanthropy is part of your plan, consider making charitable contributions. DAFs allow you to make a charitable contribution, receive an immediate tax deduction, and then recommend grants to charities over time.
Reach Out Today!
The bottom line is that by dedicating time to a mid-year financial planning review, you empower yourself to make informed decisions, stay agile amidst life’s changes, and verify your retirement plan remains robust and on track for a fulfilling future.
Don’t wait until December 31st.
Our team at Networth Advisors, LLC is ready to help now!
To schedule a meeting, call (800) 822-3639 or email schedule@networthadvisorsllc.com.
About Matt
Matt D’Amico, CFP®, is a registered Investment Adviser Representative and financial advisor at Networth Advisors, LLC, a financial planning and wealth management firm in Canonsburg, PA. The firm is dedicated to helping clients enjoy a successful retirement, specializing in income planning and legacy preservation for pre-retirees and retirees. Matt excels at simplifying complex retirement concerns to help clients make smart financial decisions.
Matt discovered his passion for finance in college, inspired by a trusted mentor, and earned a degree in finance and business management from Saint Vincent College. Before joining Networth Advisors, he gained valuable experience at New York Life and MassMutual, where he obtained his Life, Accident & Health Insurance Licenses. Matt is also a CERTIFIED FINANCIAL PLANNER® professional.
Outside of work, Matt is a sports junkie and music enthusiast. He enjoys spending time with friends, embarking on adventures with his wife, Kayla, and their mini labradoodle, Nellie. He is also the co-author of Networth for Retirement: Mapping Out Your Journey. To learn more about Matt, connect with him on LinkedIn.
