by Dave Kutcher
It is that time of year again when we all take time to reflect on the past 12 months of our lives and then make grand resolutions for change in the coming year. We all know how this story goes… it is hard to change habits. Self-discipline will be your closest friend.
Here are some easy resolutions for you that can help make 2024 the start of a whole new you!
Have emergency cash available: The unexpected need for money is inevitable. Not planning for that emergency is costly. Not just the inconvenience of having to scramble when the unexpected comes along, but the opportunity cost of having to recharacterize other money can be very high. Having to cash in retirement funds to cover an emergency, as an example, will cost you far more money than if you had planned for such an event.
We like to see folks have, at minimum, enough liquid cash available to cover 6 months of their living expenses. If you don’t have a plan for that in place now, start one today. Find a suitable money market type account and start funding your emergency account today.
401(k) leftovers: If you have left an employer and have a small account that gets distributed to you it will be tempting to spend it. Resist the urge. If you are under 59 ½ years old you’ll not only pay taxes on this money, but you will also be subject to a 10% penalty. If you don’t already have an IRA, make one and roll the funds into the IRA. You were doing fine without the money before you changed jobs, you’ll be fine without it now too. Remember, it is not the small amount now that you are giving up, it is the large amount later that would be waiting for you at retirement that is lost. $5,000 today is worth over $38,000 30 years from now assuming a 7% rate of return.
Age 50 + catch- ups: Check with your accountant to see if you are eligible to make catch-up contributions to your 401(k) or IRA plans. You could be eligible to put away over $30,000 in your 401(k) with the catch-up limits in 2024 allowing up to $7,500 in additional contributions.
ROTHs: If you are saving money for retirement today and using traditional pre-tax plans as your only vehicle for doing so, you’re going to box yourself in at retirement with little room to manage taxes during the distribution phase of your financial life. Check with your accountant to discuss your options. While you forgo the benefit of saving current income tax on contributions to ROTH, you set yourself up to access these funds and all of the growth on these funds income tax-free during your retirement.
Find your match: You must take advantage of matching contributions by your employer. If you are an eligible participant in a plan at work that matches contributions that you make to your retirement plan, you really should be sure you are contributing as much as is necessary to receive the full match. It is free money that you simply cannot give up.
Save first, spend next: When most people are planning and budgeting, they tend to focus on the expense side of the equation and then decide what is left over to save. This is the exact opposite of how you should approach this equation. Start with your gross income and decide what it is you want to save each paycheck. From there, look at what is left over and adjust your expense budget to fit what is left over.
Here is where things get tough because you are going to be forced to take a serious look at what you are spending. Cutting expenses is easier than you think. How many of us drive off from home each day only to stop and pay $5 or more for a morning cup of coffee? That is $25 per week which is over $100 per month for one cup of coffee per day. Make your coffee at home and you will pay less than $10 for the month, saving you $90 to put away for something more important.
Trust us, the money is in your budget… even in this time of inflation on groceries and gas, etc. It is there if you look for it. And put your savings plan on automatic so you don’t have to think about it and you don’t have to face the decision over and over and over again. Establish automatic payments to your savings plans and before you know it, your new habit is in place and you won’t even miss the money.
So, there you have just few things you can pay attention to in 2024 as resolutions to build a better financial house for yourself and assure that when the time comes that you want to slow down and enjoy your retirement, you will have the resources in place to do so with confidence.
Happy New Year to you all…we wish you the very best to come.
My name is David A. Kutcher, a retired Marine Corp Captain. My business partner in the lower 48 is Richard C. Scott, CLU, LUTCF. For nearly 40 years we have been helping folks with their personal retirement decisions. We encourage you to make an appointment and get ahead of your concerns as early as is possible. You can catch us on the radio every Saturday morning, “Retirement in the Last Frontier”, 8:30-9:30 on AM 650, Keni Radio. Frontier Retirement, 10928 Eagle River Road; Eagle River, AK 99577, (907) 795-7452.
