Fiduciary Advisors Retirement Tips For 2024

Navigating the sheer volume of financial advice in today’s digital age can be daunting. From saving strategies to investment suggestions, the abundance of information can often leave you uncertain about which advice to trust and follow. However, fiduciary advisors stand out amid this sea of opinions for their clarity and reliability. Unlike other financial professionals, fiduciaries are bound by a legal obligation to act solely in their client’s best interests. This fiduciary duty ensures that their recommendations are not influenced by conflicts of interest or hidden agendas but are always aligned with your objectives, preferences, and risk tolerance. As you approach retirement in 2024, heeding the advice of fiduciary advisors becomes increasingly vital.

Fiduciary financial advisors can add immense value to your life with thoughtful recommendations, tactful strategies, and timely actions. This article compiles some essential tips by financial experts to guide you toward a secure and prosperous retirement.

Below are five retirement tips offered by fiduciary advisors that you can adopt to have a comfortable retirement:

Tip 1: Think about converting from a traditional to a Roth Individual Retirement Account (IRA)

When evaluating your retirement portfolio, especially if a significant portion is held in tax-deferred accounts, you must consider the potential benefits of converting to a Roth IRA. This move can offer enhanced flexibility in managing your tax liabilities and optimize your overall financial strategy in retirement. Roth conversions can be a strategic tool in your retirement planning approach. They offer numerous advantages. One of the greatest benefits of Roth IRAs is their provision for tax-free withdrawals. Once your funds are converted to a Roth IRA, you can withdraw your assets tax-free in retirement. This feature empowers you to manage your tax brackets better and free up more of your money for your personal use in your golden years. Given the possibility of paying higher taxes in retirement, especially if you anticipate significant savings or income growth, paying taxes at your current rate may prove more favorable than facing higher rates in the future.

Moreover, if you have no immediate need to tap into your IRA funds during your lifetime, converting to a Roth IRA allows your savings to grow unhindered by Required Minimum Distributions (RMDs). This can potentially leave more for your heirs, who can generally withdraw the funds tax-free as long as they adhere to Internal Revenue Service (IRS) distribution rules. Roth IRAs not only benefit investors but also provide advantageous options for heirs, including the ability to defer withdrawals and avoid the necessity of depleting the account within ten years, as is common with traditional IRAs.

You can explore a backdoor Roth IRA conversion if you are ineligible to contribute directly to a Roth IRA due to earning a high income. This option can present an alternative avenue for accessing the benefits of a Roth account. This method allows you to contribute to a traditional IRA and subsequently convert it to a Roth account. High-income earners can still capitalize on tax-free withdrawals in retirement by using a backdoor Roth IRA conversion. Additionally, if you possess a substantial balance in your traditional IRA, implementing a systematic Roth conversion plan over several years may be prudent. This approach allows you to spread out the tax impact of your conversions and strategically manage your tax liabilities. One of the best times to consider a conversion is in the early retirement stages before RMDs take effect. This is a time when your tax output is likely going to be low and executing this strategy can optimize tax efficiency and preserve more of your retirement savings. Converting smaller amounts of your traditional IRA to a Roth while in a lower tax bracket before RMDs and Social Security benefits begin can be advantageous and help you save money that can be used for other essential goals like healthcare, utilities, and more.

However, even with all the benefits of a Roth IRA conversion, it is crucial to make an informed decision before proceeding with any Roth conversion. Under the Tax Cuts and Jobs Act of 2017, Roth conversions cannot be undone, so careful consideration and discussion with your financial advisor are paramount. Retirement planning advice by an advisor can help you streamline your accounts and make the right decision. Remember also to evaluate your financial situation and long-term goals thoroughly. This way, you can determine whether Roth conversions align with your retirement strategy and pave the way for a more secure financial future.

Tip 2: Understand the nuances of Social Security benefits and make a plan on when to withdraw them

Navigating Social Security income can be a confusing and overwhelming task, but understanding the nuances and implementing strategic planning can significantly impact your retirement finances. There are several key considerations to maximize your Social Security benefits and secure your financial future.

Firstly, it is essential to grasp how the Social Security Administration (SSA) calculates your benefit amount. Your benefit is determined based on your lifetime earnings, with the SSA indexing your earnings to adjust for changes in average wages over the years. They then consider your 35 highest-earning years and apply an Average Indexed Monthly Earnings (AIME) formula to determine your benefit at the Full Retirement Age (FRA). Working a full 35 years is advantageous as each additional year of earnings can replace a lower-earning year. This ultimately increases your average and, consequently, your Social Security benefit.

Recognizing your FRA is crucial. For example, it is typically around 66 years for current retirees. Delaying Social Security benefits beyond your FRA can be financially beneficial, as the benefits accrue an additional 8% annually until the age of 70 through Delayed Retirement Credits (DRCs). This growth, compounded by Annual Cost-Of-Living Adjustments (COLA), substantially enhances your Social Security benefit. Hence, if your financial circumstances permit, delaying benefits until you reach your FRA or beyond can significantly bolster your retirement income. Considering the potential longevity of retirement and the importance of securing a stable income stream, delaying Social Security benefits can be a prudent decision. Deferring benefits allows you to not only increase your individual benefits but also enhance potential survivor benefits for your spouse. This can provide greater financial security for both you and your loved ones in the long term. Furthermore, it is worth noting that income earned after age 60 is not indexed. So, individuals in their 60s must pursue additional income opportunities. Part-time work during this period can replace lower-earning years and augment your overall benefit amount.

It is also vital to consider the tax implications of increasing your income. This is because you may have to pay federal taxes amounting to 50% to 85% of your benefit payment, depending on your total income. The IRS employs a specific formula to calculate the portion of your benefits subject to taxation. They add your non-taxable interest and half of your Social Security income to your Adjusted Gross Income (AGI).

If this total falls within the range of $25,000 to $34,000 for single filers, up to 50% of your Social Security income is subject to tax.
If this total falls within the range of $32,000 to $44,000 for joint filers, up to 50% of your Social Security income is subject to tax.

However,

If the total exceeds $34,000 for a single filer, up to 85% of your benefits become taxable.
If the total exceeds $44,000 for joint filers, up to 85% of your benefits become taxable.

Understanding these tax consequences is crucial for making informed decisions about when to start receiving Social Security benefits and whether to supplement your income through additional work. Careful planning can help you mitigate tax liabilities and maximize your overall retirement income.

The last thing you must know in regard to your Social Security benefits is how they work if you and your spouse are both eligible to claim your checks. For married couples born before January 2, 1954, there exists a strategic opportunity to optimize benefits. If both spouses have reached their respective FRAs, one can claim spousal benefits while allowing their own benefits to continue accruing DRCs. Upon reaching age 70, they can then switch to their higher benefit and, thus, maximize their combined Social Security income.

Delaying your benefits until FRA or beyond, leveraging spousal benefits where applicable, and considering additional income opportunities can enhance your financial well-being and help you enjoy a more secure retirement. However, increased checks can also increase your tax liabilities. Therefore, it is essential to consult with a certified retirement financial advisor to navigate the complexities of Social Security.

Tip 3: Rebalance your portfolio

Rebalancing your portfolio is a pivotal strategy that can yield significant benefits and ensure your portfolio stays aligned with your investment preferences and risk tolerance. Over time, market fluctuations can alter the values of your assets. This can lead to deviations from your desired asset allocation. Rebalancing involves periodically buying or selling assets to restore the original target allocation. This helps you mitigate risks and maximize your returns.

Consider a portfolio with an initial asset allocation of 60% stocks and 40% bonds. If the stock market experiences significant growth, the proportion of stocks within the portfolio may increase to, say, 70%. To realign the allocation back to the desired 60% to 40% ratio, you may opt to sell some stocks and purchase bonds. Many investors prefer a more aggressive investment approach in their younger years, gradually transitioning to a more conservative strategy as retirement age approaches. Regular rebalancing helps maintain alignment with your evolving risk tolerance and investment objectives. Examining your portfolio allocations, at least annually, also allows you to stay informed, accommodate market changes, and adjust your investment strategy accordingly. For instance, with the potential for the Federal Reserve to reduce interest rates, fixed-income markets may experience an upswing in the near future. If you decide to rebalance your portfolio during such a scenario and increase your allocation in fixed-income assets, you will be able to capitalize on market opportunities and ensure your portfolio remains well-diversified.

There are two primary approaches to rebalancing – scheduled rebalancing at regular intervals, such as quarterly, half-yearly, or annually, and threshold-based rebalancing, which is done when your asset allocation deviates from its original target allocations. Both methods have their merits, and you can choose any of these based on your needs and goals. You can consider asking for some retirement planning advice from your advisor with respect to rebalancing to pick the best option out of the two.

There are many benefits of rebalancing. It ensures that your portfolio remains aligned with your risk tolerance and desired level of return. It encourages a disciplined and systematic investment strategy and helps you avoid emotional decision-making during market fluctuations to ensure that your investment decisions are based on your long-term goals rather than short-term market movements. Whether your circumstances evolve due to life events or market conditions shift, rebalancing allows you to adjust your portfolio accordingly to stay on track towards your objectives. However, rebalancing incurs transaction costs, which may impact the overall net income of your portfolio. Buying and selling assets can result in brokerage fees, commissions, taxes, and other expenses that can eat into your investment returns. Moreover, selling assets that have performed well in order to rebalance the portfolio may lead to missed opportunities for further gains. If those securities continue to outperform the market, you may regret the decision to sell them prematurely. Effective rebalancing also requires a certain level of investing knowledge and experience. Without a solid understanding of portfolio construction, asset allocation, tax laws, and market dynamics, you may struggle to rebalance your portfolios optimally. Therefore, it is essential to weigh the potential advantages of rebalancing against the associated costs to determine whether it aligns with your overall investment strategy and financial goals. You must take retirement planning advice from your advisor and understand the best practices for rebalancing for your long-term financial security.

Tip 4: Understand and plan for the sequence of returns risk

Managing the sequence of returns risk is paramount in retirement planning, as it can significantly impact the sustainability of your savings. The sequence of returns risk refers to the danger caused by the order of investment returns. The order of your returns could negatively impact the value of your investment portfolio during retirement. In essence, it is the risk of encountering poor investment performance early in the withdrawal period, which can significantly diminish the long-term value of your portfolio. If a retiree experiences significant losses in the early years of retirement, it can have a disproportionate effect on the overall portfolio’s value. Even if the market recovers later, the portfolio may not have enough time to rebound fully. This can lead to a diminished income stream throughout retirement.

For example, consider two retirees with identical investment portfolios and withdrawal strategies. If one experiences poor investment returns in the initial years of retirement, they may exhaust their portfolio prematurely, while the other, who encounters those poor returns later, may have a more secure financial position. Imagine two retirees, both starting with $1 million in their portfolios and withdrawing $50,000 annually. Investor A faces a 15% market decline in the first year, depleting their savings by year 18. Meanwhile, Investor B encounters the same decline in year ten but retains $400,000 by year 18.

It is crucial to plan for market downturns and adopt a gradual allocation strategy from aggressive to conservative investments to navigate the sequence of returns risk. Beginning with more aggressive investments in the earlier stages of your retirement and gradually transitioning to conservative options mitigates the impact of poor returns early on. Experts recommend adopting the bucket strategy wherein you divide your portfolio into multiple buckets. Each bucket has a distinct purpose and should be used for a specific time horizon. You can separate your assets into short-term, medium-term, and long-term buckets. Make sure your immediate needs come first so you ensure a secure income source for these while allowing the rest of your portfolio to grow over time, thereby minimizing the impact of market fluctuations. Furthermore, reducing distribution amounts, returning to part-time work, or exploring alternative income sources can also help offset the effects of market downturns without depleting your retirement portfolio. It is also advised to have a contingency plan in place to draw income from sources other than your portfolio’s losers during downturns. This can allow your investments time to recover. This approach minimizes the need to sell assets at lower prices and provides flexibility to adapt to changing market conditions, ultimately safeguarding your financial security against the risks of a sequence of returns.

Adopting strategies such as the bucket strategy and having contingency plans in place can help you navigate market downturns with confidence and preserve your retirement savings for the long term. However, it is also recommended to consult with a fiduciary advisor, as deciphering a withdrawal strategy for your savings can be a complex process with multiple permutations and combinations.

Tip 5: Be prepared for the changing tax laws

Tax planning plays a pivotal role in retirement planning. It allows you to optimize your income streams, preserve your money, and maximize your savings during your retirement years. Understanding the tax implications of different retirement accounts, such as traditional IRAs, Roth IRAs, and employer-sponsored plans, enables you to make informed decisions about when and how to access your funds. For example, converting traditional IRA funds to Roth IRAs, as discussed above, can offer tax-free withdrawals in retirement for better flexibility and potentially reduced tax burdens in the long run. Tax planning also facilitates efficient estate planning and wealth transfer. It ensures you can pass on your assets to your heirs while minimizing estate taxes and probate costs. Utilizing tax-advantaged investment vehicles and taking advantage of available tax credits and deductions further enhances your retirement income and preserves wealth.

However, to plan efficiently, you must stay updated with evolving tax laws. Navigating changing tax laws requires strategic planning. With the Tax Cuts and Jobs Act of 2017 scheduled to expire by the end of 2025, 2024 can be an instrumental year to reassess your tax planning approach. The Act introduced significant changes, including a reduction in individual tax rates. For instance, the top tax rate dropped from 39.6% to 37%, with corresponding adjustments across various income brackets. However, these revisions are temporary, and without extensions or revisions, taxpayers may face higher tax burdens ranging from 1% to 4% after the Act expires in 2025. Furthermore, the Act nearly doubled the standard deduction for all filing statuses, leading to fewer itemized deductions. However, these changes are also set to expire after 2025. This necessitates a thorough understanding of your tax situation, including whether you itemize deductions or opt for the standard deduction, as well as your effective and marginal tax rates.

Planning ahead is crucial in this uncertain landscape. While the future of tax laws remains unclear, proactive steps can be taken to create a suitable tax strategy. Consulting with a certified retirement financial advisor to assess your individual circumstances and explore tax-saving opportunities is recommended. You must analyze your current tax situation and consider potential future changes to develop a plan that maximizes tax efficiency and minimizes your liabilities. Ultimately, staying informed and proactive is key to navigating changing tax laws and optimizing your financial outlook in the years to come.

To conclude

Essentially, the only three tips to help you retire better are to plan well, be prepared for the unknown, and consult with your fiduciary financial advisor for personal guidance. However, the five tips given above can help you target your concerns and set the path for a financially secure retirement in 2024. Incorporating these tips into your retirement planning process can help you proactively address critical challenges.

Use the free advisor match service to get matched with a suitable financial advisor who can offer personalized guidance tailored to your needs, further solidifying your retirement strategy. Answer a few simple questions based on your financial needs, and the match tool can help connect you with 1 to 3 financial advisors who are best suited to help you.