It’s often said that most New Year’s resolutions are typically broken within the first month of the year. However, when it comes to retirement planning, there are best practices that financial advisors can encourage their clients to stick to throughout the year to help them stay on the path toward retirement readiness.

1.       Control what you can control

There is a lot of information to take in these days, whether it be related to market events, geopolitics or government policy. These headlines are often front and center in our news feeds, and they have the tendency to occupy our clients’ minds. Yet, the irony is that these are factors investors clearly can’t control. When it comes to sound retirement planning, it’s important for advisors to help their clients focus on two items that they can directly control: saving and spending. Regardless of what’s happening in the world, maximizing savings, managing spending and optimizing diversification are evergreen strategies to employ in 2024 and beyond.

2.       Check in: Am I on track?

Too few Americans have calculated what it will take to be able to retire at their current lifestyle. With annual reviews moving to the forefront of many advisors’ calendars, it’s a timely opportunity to help clients gauge whether they are “on track” to afford their desired lifestyle in retirement based on their current age, savings and annual household income. Considering an appropriate income replacement rate, an estimate of how much Social Security is likely to cover, and assumptions about rates of return and inflation can help determine retirement readiness—and reveal what, if any, adjustments need to be made in order to stay or get back on track.

3.       Plan for emergency spending

As a complement to the investment strategy, maintaining an adequate emergency reserve can help insulate the household balance sheet from unplanned spending shocks. While no one can accurately predict unemployment, healthcare costs or unexpected expenses, an emergency reserve of three to six months of expenses for retirees can be key to staying on track.

4.       Remember: It’s not just what you earn, it’s what you keep

Just like many advisors advocate that clients diversify their investment portfolios across asset classes, it’s also important to help them diversify their sources of retirement funding. Individuals often have much of their retirement wealth in a tax-deferred vehicle, such as a 401(k) plan. While that can certainly be a powerful savings option, the tradeoff is that distributions generally come with income tax consequences. Employing income tax diversification across a mix of taxable, tax-deferred and tax-free (i.e. Roth) accounts can offer retirees flexibility and control over their retirement income sources and the tax impact on their distributions. Today’s relatively low tax rates are scheduled to sunset after 2025, which creates a window of opportunity to consider Roth conversions in order to shift tax-deferred assets to tax-free accounts.

5.       Stay calm, stay invested

While cash may look attractive right now, retirement planning can be a longer-term journey that requires diversification beyond cash. Advisors play a critical role in helping clients to not only get invested, but to stay invested, especially during periods of market volatility. Market timing is extremely difficult, even for savvy investors, because it’s not just about being right once—when to sell—but being right twice— as in when to buy back in. The worst days in the market are often followed by the best days in the market, and missing those best days can have dire consequences on a portfolio, as shown in [EXHIBIT 1] below. If a client’s long-term goals have not changed, helping them resist the short-term urge to abandon equities in favor of cash can lead to better retirement outcomes.

0927242201162112