Planning for 2024 doesn’t have to be a complex, time-consuming ordeal. There are some proactive steps you can take now to position yourself for a more favorable tax outcome next year and improve your retirement plan results simultaneously.
Our San Antonio fiduciary financial advisors can share their insights about three financial planning tactics you can take now that can provide both short and long-term financial benefits:
- Taking a more defensive investment strategy in the face of market volatility
- Maximizing contributions to tax-advantaged accounts
- Assessing your current asset allocations in your retirement accounts
Your goal should be to create a flexible, tax-efficient financial strategy that allows you to adapt to fluctuating economic conditions.
Defensive Investment Strategy
Planning for a secure retirement amidst the uncertainties that 2024’s market conditions may bring requires tested defensive investment strategies. By adopting such an approach, you’re not merely shielding yourself from market unpredictability but also laying the groundwork for long-term financial stability in your retirement years.
When the markets show turbulence, traditional investments focused on growth—such as common stocks—can suffer significant declines in value. This elevates the role of alternative investment avenues in your portfolio, including U.S. and corporate bonds, stocks of utilities and healthcare companies, and income-generating real estate.
This asset allocation doesn’t advocate forsaking growth but advises a defensive strategy emphasizing safety first for your retirement assets. Ignoring this conservative approach can carry potential risks that impact your ability to accumulate or preserve more assets for retirement.
To equip you for the challenges that may be presented by volatile economic conditions in 2024, we recommend the following defensive investment strategies:
- Ensure your investments are diversified across multiple asset classes (stocks, bonds, cash equivalents). Avoid concentrated positions that adverse economic conditions may impact. Consider a more global approach for the investment of your assets. All of the best companies are not headquartered in the U.S.
- While you can still invest some of your assets in stocks, focus on companies with exceptional balance sheets, strong management, and a history of stable dividend payments. These companies are generally more resilient during fluctuating market conditions, providing a financial buffer for your stock investments.
- Working with a CERTIFIED FINANCIAL PLANNER (™) in San Antonio, you may want to consider a dollar cost cost-averaging strategy. You invest a consistent amount of money each month, quarter, or year, regardless of market conditions. You get more shares in down markets when prices are lower. You get fewer shares in rising markets when prices are higher. This strategy can lower your average cost per share in various market conditions.
- Always maintain six to twelve months of liquid assets as a cost of living reserve so the unexpected does not force you to sell at the wrong time. This liquid amount could also be considered a buying reserve that can be used to buy undervalued assets when markets are down.
Maximize Tax-Advantaged Account Contributions
As 2024 nears, it’s time to reassess your financial goals, especially if you plan to retire within the next few years. If you are a W2 employee, now is the time to determine if you have fully utilized your contribution limits to your tax-advantaged accounts, such as 401k, 403b, 457, IRA, or HSA.
This isn’t just about meeting minimums; it’s about capitalizing on every available opportunity to accumulate more assets for retirement. If you’re under 50, you can contribute up to $22,500 this year in your 401k. If you are over 50, you can make an additional “catch-up” contribution of $7,500, allowing you to save up to $30,000 toward your retirement years.
Why maximize these contributions? Every dollar you contribute lowers your taxable income, giving you short-term tax relief and more assets that can produce income during your retirement years.
As San Antonio financial planners, we often stress the importance of leveraging tax-deferred growth. Simply put, the money in your tax-advantaged accounts grows faster than assets in taxable accounts, producing better net returns to fund your retirement.
This is particularly beneficial for you as a high-income earner because you are most likely in a higher tax bracket, so the deductions for contributions to these accounts can produce bigger tax savings.
Don’t leave your contributions to the last minute; start as soon as possible.
Look at 401k Allocations to Plan for 2024
If you plan to retire in the next few years, you should be cautious about adopting a “set-it-and-forget-it” strategy for your 401(k) allocations. You are in a high-risk zone because your assets are near their peak and your investment horizon is relatively short-term.
If you have had a static asset allocation for several years, now is the time to consider changes that can reduce your exposure to investment risk. You do not want a “set it and forget it” strategy as you get closer to retirement.
While it’s tempting to stick with what’s worked in the past, market conditions are constantly changing, and so should your strategy.
- A static strategy may not adapt to changes in your financial situation or market conditions. For example, as a high-earner, your income and expenses may change along with the markets. Consequently, it is important to periodically reassess your investment allocations in your accounts to ensure they align with your current goals and timelines.
- Over time, market fluctuations can significantly impact the allocations of your invested assets. For example, stocks may outperform bonds, which can increase your risk exposure in the future. Periodic rebalancing is an important investment process. A fixed allocation may expose you to unnecessary risk, especially as you get closer to your retirement date.
- Failing to manage your 401(k) can also lead to missed opportunities for accumulating more assets. The financial landscape is always changing, and this creates new investment opportunities.
- A static approach may only produce a tax-efficient solution if your income increases. You may need an up-to-date strategy that reflects your current circumstances.
How PAX Financial Group Can Help You Prepare for 2024
Financial planning isn’t a one-size-fits-all endeavor, and we understand that. We’re committed to crafting a financial plan that’s not only robust but also distinctly tailored to you and your goals. As your San Antonio financial advisor, we can help you develop a financial strategy that is unique to you and your financial circumstances.
At PAX Financial, we don’t see retirement as the result of your working years. We view it as an exhilarating new chapter in your life that may last another 30 or more years for both spouses. We’ve coined a term for this transition: PIVOTING. It’s not just about leaving the workforce; it’s about boldly entering a new phase of your life (aptly named the “Golden Years”).
Our PIVOT Retirement Planning™ approach aims to provide a holistic experience, guiding you financially, emotionally, and physically. We help you prepare for retirement, then we provide the financial advice and services you need for a comfortable lifestyle. We’re dedicated to making your retirement years the pinnacle of your life’s journey.
Retirement can be overwhelming, particularly when factoring in important dynamics like longevity, healthcare, and financial security late in life. The financial decisions you make today can have a major impact on your life in the future.
This is where our extensive expertise with the PIVOT system comes into play. We don’t just prepare you for a financially secure retirement; we create robust plans that impact every aspect of your life, ensuring you’re prepared for the exciting adventure ahead.