For many investors, this year has been a wild ride—with interest rate increases, a crypto implosion, and whipsawing values in the major market indices. It might be tough to catch one's breath and look ahead to next year. But the end of the year is the perfect time to take stock of your investments, evaluating what worked, what didn’t, and what you might do better next year. Here are four key opportunities to consider that may recharge and reset your finances as you enter the new year.
Review and Refresh Your Financial Plan
If you set goals for the past year, evaluate your progress. Did you spend more than expected? Save less than expected? Or did you manage your goals easily—suggesting a bigger challenge may be appropriate for next year?
While setting financial goals for next year, you might also consider the long-term. When do you plan to retire? What do you need to see before getting there—a specific number in your 401(k), a paid-off balance sheet, or something else? Should you stay in your home or downsize? The answers to these questions may help you formulate a more solid plan.
Assess Your Retirement Readiness
Are you on schedule to retire? Are you contributing enough to your 401(k) or IRA?
Though the answers to those questions depend on each person's circumstances, some patterns are emerging in savings habits among those in their 20s, 30s, 40s, 50s, and beyond. Check these numbers to see whether you are on track.1
Age 20 to 29
Average 401(k) balance of $10,500 while contributing 7% of income
Age 30 to 39
Average 401(k) balance of $38,400 while contributing 8% of income
Age 40 to 49
Average 401(k) balance of $93,400 while contributing 8% of income
Age 50 to 59
Average 401(k) balance of $160,000 while contributing 10% of income
Age 60 to 69
Average 401(k) balance of $182,100 while contributing 11% of income
Age 70 to 79
Average 401(k) balance of $171,400 while contributing 12% of income
These numbers are simply averages—they do not account for income, sector, or cost of living. They also do not include assets in individual retirement accounts (IRAs), taxable accounts, or other savings accounts. But knowing what those in your general age bracket save, on average, might give you a better idea of your progress toward retirement savings.
You should notice that as workers grow older, they tend to contribute a greater percentage of their total income to retirement.
Pay Down High-Interest Debts
With interest rates continuing to rise, credit cards, home equity lines of credit, and other variable-rate loans are likely to grow more expensive.2 If you have any adjustable-rate loans, now is a good time to begin paying them off more aggressively.
Calculate Your Cash Reserves
It is a good idea to have some cash held for emergencies during turbulent times. From an unexpected medical bill to a new appliance, having cash on hand may help avoid the stress of paying for sudden expenses. Assessing your cash reserves at the beginning of the new year may give you a good baseline for setting cash accumulation goals.
Important Disclosures:
Investment advice offered through Planned Financial Services, LLC (“Planned Financial”), an SEC registered investment adviser.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
All information is believed to be from reliable sources; however, Planned Financial Services makes no representation as to its completeness or accuracy. Planned Financial blog articles are meant for informational purposes only, are not intended to serve as a recommendation to buy or sell any security and are not an offer or sale of a security. This is not a research report and is not intended to serve as the basis for any investment decision. Any third-party information provided therein does not reflect the views of Planned Financial Services, LLC or any of its subsidiaries or affiliates. All investments involve risk, and the past performance of a security or financial product does not guarantee future results or returns. Planned Financial Services’ blog contains articles on budgeting, business, insurance, planning, spending, and financial health, etc. The goal is to make business and financial news accessible to our clients. Writers conduct daily research through a variety of primary (e.g., press releases, financial reports, public statements, economic data, social media accounts, interviews, etc.), and secondary sources (e.g., The Wall Street Journal, Bloomberg, etc.). Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections are hypothetical in nature and may not reflect actual future performance. The content on this article is for informational purposes only and does not constitute a comprehensive description of Planned Financial Services’ investment advisory services. Please see our website and Brochure for more details.
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Footnotes:
1 The Average 401(k) Balance by Age, Investopedia,
https://www.investopedia.com/articles/personal-finance/010616/whats-average-401k-balance-age.asp
2 What Rising Interest Rates Mean For You, CNN,
https://www.cnn.com/2022/09/21/success/what-rising-interest-rates-mean-credit-mortgage/index.html
