8 Year-End Moves to Make to Protect Your Retirement

As 2016 comes into the home stretch, investors need to take a look at their retirement savings and investments — it’s been a wild year for the stock market, after all. The first couple of months of 2016 saw a pronounced drop in the markets. In late June, the market took a short but steep hit due to the Brexit vote in the United Kingdom.

But as summer rolls into fall, now is the time to ensure your 401k and IRA contributions will be maxed out for the year and to check your portfolio to be sure your asset allocation is within your target range. This is also the time to look at your overall financial situation to ensure there are no holes in your planning, or that areas of potential risk have surfaced.

Make these financial moves so your retirement savings are still looking strong through New Year’s.

person working with charts

1. Rebalancing Your Portfolio

Many studies over the years have shown that asset allocation is one of the major determinants of your overall return from your investments. Different types of investments perform differently over periods of time. Rebalancing is an important tool in keeping the risk-reward profile of your investments in line.

Even the most diversified portfolios will have some asset classes do better than others in any given year,” said financial planner Sterling Raskie of Blankenship Financial Planning. “It will be important to rebalance to get the portfolio back to its original intended asset allocation. For example, an individual investor may have a portfolio of 50 percent stocks, 30 percent bonds, 10 percent real estate and 10 percent commodities.

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In any given year,” he continued, “the returns of the asset classes could make the portfolio out of balance. Toward the end of the year, the portfolio now looks like 45 percent stocks, 33 percent bonds, 15 percent real estate and 7 percent commodities. Rebalancing the portfolio to the original allocation avoids over-weighting in any one asset class above the original allocation and risk profile of the investor over long periods of time.”

w-4 form

2. Revisit Your W-4 and Savings Strategy

Although you might not need to review your W-4 every year, give it a look after major life events in case you can make changes that will save you money.

“Many individuals have changes to their tax situation as they age,” said Raskie. “Some have children leave the nest yet fail to update their W-4 to reflect the change in dependents. Others who first filled out the W-4 when single — and thus had only one exemption and more tax withheld — are now married with children, yet the same amount is withheld as if they were single.”

Read: 7 Surprising Ways Money Affects Your Love Life

Raskie suggested updating your W-4 to reflect your current tax status so you can free up money for 401k and IRA contributions. You can also avoid getting a big refund during tax season by having more money to invest or spend throughout the year. Further, life changes can directly affect your savings strategy.

“Career changes and family situations can impact how you should be saving for retirement,”  said Jim Poolman, executive director of the Indexed Annuity Leadership Council. “As current expenses and future needs change, it’s beneficial to review your savings strategy.”

stock market prices

3. Protect Against Downside Stock Market Volatility

When people talk about investment risk and volatility, they’re often concerned with downside risk, which is the chance of their investments losing money. And, at times, there’s good cause for concern.

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“This year should be especially volatile given the unknowns surrounding this particular presidential election,” said Kirk Chisholm, wealth manager at Innovative Advisory Group. “Make sure you are prepared for this volatility, and don’t be afraid to protect yourself with larger-than-normal allocations of cash.”

He recommended having an allocation in cash in order to “reduce the volatility of your portfolio and give you a way to invest back into the market if it sells off in a meaningful way.”

man working in home office

4. Max Out Deductible Contributions

If you can afford it, upping your contributions to your retirement plan is always a good idea.

A GOBankingRates.com study found that saving $158 per month starting at age 25 will net you $1 million by 65, assuming a 10 percent return. If you start at 35, however, you’ll have to save over $440 per month to reach $1 million by the same age. That’s why it’s always important to start saving early, and to save more when you get the chance.

“I would recommend maxing out any deductible retirement plan contribution prior to year [end] or, if allowed, prior to tax filing for 2016 taxes,” said Patrick Renn, founder and president of The Renn Wealth Management Group. “Contributions typically increase retirement account values more than investment returns do over time. Also, this action has the additional benefit of reducing current income, thereby reducing the associated income tax.”

elderly couple working on finances

5. Take Advantage of Catch-Up Contributions

Individuals age 50 and over can contribute more money to their retirement plans. If you can afford to do this, you might see your money grow faster in the following years.

“For 2016, this includes an extra $6,000 for 401ks, 403bs [and] 457bs for those age 50 or older,” said Raskie. “For IRAs, this is an additional $1,000 for those age 50 or older. Additionally, 403bs and 457b have service-based catch up provisions for those with long terms of service (teachers with 403bs) and those nearing retirement (457bs). Simple IRAs also have age-based catch-ups.”

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While catch-up contributions you make might not seem like much, your additional savings will add up over time. Even if you can only spare an extra $1,000 for your retirement accounts, that’s an extra $1,000 supplementing Social Security income.

man typing on laptop

6. Look to Tax-Loss Harvesting

Selling off investments for less than you paid for them can help you offset gains realized on other investments. Your losses can be deducted from other income earned, and up to $3,000 can be deducted each year. That’s tax-loss harvesting.

Related: 7 Things You Need to Know About Tax-Loss Harvesting

“Folks with non-qualified retirement accounts may consider tax-loss harvesting on assets that have lost considerable value,” said Raskie. “Although the loss is maximized at $3,000 annually, [the] unused amount can be carried forward to future tax years. This reduces taxable income.”

insurance binder

7. Consider an Umbrella Insurance Policy

An umbrella policy can protect you from future lawsuits. Considering today’s litigious society, this type of policy seems like a no-brainer. After all, why lose your nest egg over a slip and fall on your property?

This type of insurance can “protect retirement savings from creditors that is held outside qualified accounts such as bank accounts, taxable investment accounts and real estate,” said David McCormick-Goodhart, a financial advisor at Savant Capital Management. “An umbrella policy provides additional liability coverage beyond the thresholds of your auto and homeowners policies.”

Picking up umbrella insurance is also affordable because claim rates are low. If you already have an umbrella policy, “review your coverage to make sure it is still appropriate,” said McCormick-Goodhart.

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couple making calculations

8. Check Last Year’s Social Security Earnings Record

Mistakes happen, and it’s important to stay on top of your Social Security benefits prior to retirement.

“One thing that I think is critical for everyone to check at the end of the year is their prior year’s Social Security earnings record,” said Devin Carroll, financial advisor and founder of SocialSecurityIntelligence.com. “One year of missing earnings can make a difference of $100 per month or more for your entire retirement. Over the average retiree’s lifespan, that could be a difference of $30,000 in missed benefits.”

Carroll said mistakes happen, too. He cited a 2015 report that states the Office of the Inspector General “found that in tax year 2012 alone, the Social Security Administration reported $71 billion in wages that could not be matched to an individual’s earnings record. Thankfully, the Social Security Administration has a system for sorting out some of these mistakes and assigning the earnings to the correct person. But nearly half of the mismatches are never corrected.

“That means,” he continued, “that in 2012, there were approximately $35 billion in wages that was never credited to an individual’s Social Security history.”

Carroll said the fix is relatively simple, too. He suggested logging onto your online Social Security account and double-checking your earnings. You might find you’ve left money on the table.


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