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As we step into 2025, this is a perfect time to take charge of your retirement, to take charge of your retirement plan. Today I’m going to talk to you about some key things you can do to get retirement in 2025.
The very first thing you need to do if you’re going to start a retirement plan or start building toward retirement, is to take an honest evaluation of where you are right now. You need to look at the income you’re making right now, and make sure that you’re making the best income that you possibly can. It might mean that you need to change jobs or pick up a part-time job, but you need to look at your income and see that you have sufficient income coming in.
Secondly, you need to look at your expenses. Where’s that money going? What’s going out? If you ever do a budget, which a lot of people are reluctant to do a budget, but I’ll tell you what value that brings. If you ever do a budget, you’re going to find that it tells you where your money’s going. And believe it or not, so many people are shocked when they find out that, “Wow, we didn’t have any idea that much money was going to something we don’t value, and very little money was going to something we do value.” So you need to do that income analysis, you need to look at your budget, and then when you see that money going out, you ask yourself a question, “how much is going out to debt and what is that costing me?” And by that I mean yes, you’re buying the goods and they have a certain cost and you’re paying for those with the credit card, but how much extra does it cost for interest through the years as you’re paying interest on those credit cards year after year, and as you’re paying interest on your house year after year after year?
We’re talking about using 2025 to get ready for retirement. So you not only need to look at the income that’s coming in, the expenses that are going out, but you also need to look at your debt and see how you can get that paid off? What can you do in the area of debt reduction to get that weight off of you so you can run the race toward retirement?
Number two, now that we know exactly where you’re at, income expenses, debt, debt reduction plan, now that we’ve got that all in place, number two, you need to maximize your contributions to your retirement plans. If you’ve got one at work, it’s called a 401k, a 403b, a 457. If you’re self-employed, it may be called a Simple plan or a SEP, S-E-P I-R-A, but those are plans that you can do through your workplace. Those have larger contribution amounts. For instance, the four plans, if you’re under the age of 50, you can contribute $23,500. If you’re over the age of 50, you can contribute 31,000. These are all 2025 numbers and a crazy thing that they’ve done that I like. In 2025, If you’re at the age of 60 to 63 you can contribute $34,750 to those employer plans, those 401Ks, 403Bs. So you throw up your hands and you say, well, I don’t have one of those. Well, you do have the opportunity to have an IRA or a Roth IRA. Now if you’re under the age of 50, again, you can contribute $7,000 in 2025, and if you’re over the age of 50, you can contribute $8,000. But here’s the thing, you can do this and you can do that, and it’s like the old saying would’ve, could have, should have. You need to go do something. You either need to go see your HR person or you need to call a financial advisor like us and say, I need to start an IRA or a Roth IRA. And when you get started, you automate it. That’s the secret to the plans that you do through work. It comes out of your paycheck before you ever get it. If you need to set up an IRA or a Roth IRA, then we can set that up where that comes automatically on the same day each month out of your bank account. But you need to automate what’s important, and that is very important to just let that begin to build, and it comes out every single month and you get used to it.
Third, you need to be mindful of your risk and the risk that you’re taking and the risk that your portfolio is taking. Let me talk about that and then I might even add a third risk here. Are you ready? The risk that you’re taking, that’s called risk tolerance. What allows you to be able to sleep at night because you have a risk score. We actually use a program called Riskalyze that takes us from zero to 100 and it shows us your risk tolerance. It may be very, very low. It may be very, very high, 100 being equal to the market, zero being equal to pretty much money in the bank, no risk whatsoever to your principle. So what’s your risk score? That’s your risk tolerance. Number two, what’s your portfolio risk score? Because what you’re invested in now has a risk score to it. In other words, it’s somewhere between zero and 100 and the risk that it’s taking in the market, are you taking the risk of the stock market? Are you taking almost no risk of the stock market? Two things. You need to know what both of those risks are. And secondly, you need to match those risks so that your tolerance is equal to what you’re actually taking in your investments. And there’s one other thing you need to speak with a financial advisor about, and that’s a little bit different. It’s your risk capacity. I mean, if you’ve got X amount of dollars and it needs to grow, but you only have one year until you’re going to retire, do you really have the capacity to put all of that money in the market and risk a year of downturn, which we’ve had. We had one in 2022 where it was 22% down. So what I’m saying is if you put all of your retirement money and say, I really need to be aggressive this year because I’ve only got one year left, you probably don’t have the capacity within your portfolio to be able to take that much risk.
I used to drive an old, old, old, it was a car. I don’t even want to tell you what it was. It was so old and it would only go so fast, and I’d get on the freeway and cars would zoom by me and I’d want to go faster, but I couldn’t because I didn’t have the capacity. Sometimes you need to realize that your risk tolerance is one thing. The risk of your portfolio is another thing. And the capacity you have to really be able to make more money without blowing up your portfolio right at the end before retirement.
Number four, let’s make 2025 the year you really get ready and get started on building that retirement plan. Well, you’ve got to be mindful of taxes. The first thing you need to be mindful of tax withholding because every year those change a little bit. The amount of money that you’re taking out for the 401k goes up a little bit this year. The 403B goes up a little bit this year. So you’ve got to be mindful of taxes, and you’ve got to be mindful of, do I need to pay them now or do I need to wait until later? There used to be an old oil filter commercial that says, pay me now or pay me later. And if you wait till later, it’s always more. Well, sometimes that’s the way it is in taxes. What are the taxes going to be if I shelter that from tax now? Don’t pay the tax on it. Now, putting it into a pre-tax 401k and not paying the tax on it now, but then having to pay full income tax on every penny when it comes out, does it make sense to look at a Roth option?
You say what’s the difference there? You pay the tax on it. Now when you know what the tax rates are, assuming they will be higher in the future, and you don’t pay any more tax after you paid the tax to get the money into the Roth, whether it’s a 401k or a regular Roth IRA. So you need to really be mindful of that. You want to give yourself a checkup, then total up all of the money that you have in IRAs and 401Ks, and regular IRAs. Go to this website that I’ve set up. It’s called Ease my tax bill.com. That’s EASE my tax bill.com. Enter in your tax rate, enter in your amount that you’ve got in your 401Ks and your IRAs, and it’ll show what you’re going to have to pay if you pay it out the government’s way, versus if you’re working with financial planners like we do, who address taxes, what you could save in the way of taxes according to your plan versus the plan the government has for you.
But you’ve got to be mindful of taxes. You’ve got to pay them somewhere along the way, and you need to do it when it’s to your advantage. And that may be in 2025.
Number five, what am I giving away? What am I contributing to? My church, synagogue, special interests that I have, 501C3 charitable organizations? Giving away is a very important part, and what you’re giving away is a very important part of any financial plan. I’ve got people that are in retirement who continue to be givers and continue to be charitable with their money. There are ways you can do it. You need to make sure if you’re listening to this show at the end of a year, you need to make sure and get those things postmarked and get them in the mail before the end of the year. If you’re listening to it at the beginning of a year, you didn’t lose anything.
You have a whole year to contribute to something and a whole year to plan your giving. Now, let’s talk about one tool you can use for charitable contributions, and that’s called A QCD. It’s a qualified charitable distribution. If you’re 70 and a half and you have non-taxed money, it’s pre-taxed money. It’s in an IRA. You can’t do this from a 401k, but you can do it from the money that’s in your IRA. You can actually give that money directly to the charitable organization or a church. We do a lot of these at the end of every year for our clients who are charitable and they get the full deduction, you get credit for the deduction and it counts against your required minimum distributions when you reach the age of 73. So it’s a triple win. And the only one that loses, I like to say this is the IRS because they don’t get any money out of it. It just goes directly to the church. And then that church or that charitable organization, they don’t pay any taxes. So therefore, the IRS is the only one standing there looking for their money and they don’t get anything. It’s a great way for you to give more and get the deduction for it, but yet it not hurt you.
Number six, when you’re getting ready for a retirement plan, we don’t like to talk about it, but you have to build in healthcare cost. Now, if you’re still working, you say, oh my goodness, I don’t want to deal with that until I’m there, and won’t Medicare take care of everything? No, Medicare won’t care of everything. Medicare won’t take care of long-term care. For instance, Medicare so far won’t take care of home healthcare. So there’s a lot of things Medicare won’t take care of. So how do you get prepared for it in 2025?
Some of you have the opportunity to be in an HSA, not a homeowner’s association, but an HSA health savings account where you can actually contribute to it, get a tax deduction and later on, pay for medical expenses out of that without being dinged for it or paying tax as you take money out of an HSA to pay for either your healthcare needs or your family’s healthcare needs. So all of those things that they talk to you about in HR every year, and you just sort of blow off those meetings and go out to an extended lunch rather than going to that boring lunch where they talk about a lot of gibberish, some of that gibberish can help you if you have the opportunity to be in an HSA to start contributing to an HSA, especially if your company puts some money into that HSA. If you set one up, you might need to look at that because it could be a great way of preparing yourself in 2025 for a future retirement and to be able to pay for the healthcare issues that are going to come to you.
Number seven, people don’t realize that a lot of times their insurance needs change when they get to retirement. Lemme just take one thing. Life insurance, most of the time people buy life insurance when the kids are at home and they’ve got a mortgage, and it’s so that if something happens to them, they can pay off the mortgage and they don’t have to move out of the house. If something happens to you as maybe a breadwinner or one of the parents that’s in the home. So what happens when you get the house paid off? The student loans are paid off, the kids are out of the house.
What happens? Do you still have any debt? You may find that you don’t need that expensive life insurance. Now, it’s always beneficial to get a tax free because that’s how life insurance passes a tax free payment to someone after they lose a loved one. But do you really need to have to make those premiums? If you have a tight budget, you’re thinking about entering into retirement and your budget is tight, you need to do an open, honest evaluation of your insurance and say, here’s the question to ask yourself, would I buy that insurance if I didn’t have it? In other words, you’re left with it. It’s still there. Maybe it was a 25 year term or a 30 year term and you’re still paying for it and it could cost you four or five, six, $700 a month if it’s a nice size policy. But you have to ask yourself a question, do I really need it?
What would it pay off? Do we have enough in our savings in our 401k in our IRA that will be left to run the budget without the life coming in and being a contribution in case I’m no longer there? Once you no longer have income, and you do that evaluation, you realize how important that job is getting the mortgage paid off, getting the student loans paid off, and you may not need life insurance or other insurances, and then you may need other types of insurance. It may be the time to look for long-term care insurance that’s not covered by Medicare. You need to do an insurance review. And let me hasten to say this, these people who are always holding themselves out and said, we are fiduciaries. We don’t sell commissionable products. Well, part of your plan needs to be insurance and Medicare, long-term care, home healthcare, all of those things are covered by insurance.
Those are all commissionable products. And if somebody’s just straight fiduciary, we’re fiduciary when it comes to managing your money, your investments. But when it comes to commissionable products, no one’s a fiduciary. You need to work with somebody who works both sides of that field and by working both fields, here’s what I mean, they’re there to be a fiduciary to do absolutely what’s in your best interest when it comes to managing your money, but when it comes to the insurance products, they’re there to give you an honest evaluation in that field as to whether you need that commissionable product or not. If you’re just a fiduciary, if you’re just an insurance person, you’re not covering both fields. If you’re both like we are at Moseley Wealth Management, you’re covering the fiduciary investment side and you’re covering the insurance commissionable side.
Number eight, are you ready? Get your estate plan intact, get it all sealed up.
You can’t make decisions when you’re not here anymore. If you own property, if you have a non-qualified account of any size at all, you probably need a trust. You probably need to leave that to a living trust so that it doesn’t go to probate and it probate takes their 4, 5, 6% out of it. It costs your family, oh, it’ll go to your family. They’ll find them eventually, but they’ll look through. They’ll place ads, they’ll look through anybody who might owe you. They’ll pay all of those people out. And then once it goes through probate, then what’s left comes to the family. If you’ve got to trust, the trust then holds all the property and whoever is the successor trustee writes and signs for the trust and things, then go on after you pass away without interruption. That’s what happens with a trust. But everything goes through the conduit of the probate system.
If you don’t have that, a trust is also going to have in their living will directives like healthcare directives. You might’ve been asked that. If you go to have a real serious test and they’re going to put you under to do the test or maybe do a minor surgery, they’ll say, do you have a healthcare directive? A good trust is going to have that. It’s got a durable power of attorney for your finances in case you’re not able to make decisions in case you’re not able to make end of life decisions. It’s got all of those things in there and you need to get your affairs together. And one other thing it’ll do, it’ll make you pull all of your accounts together and consolidate them in one document so that you can see everything you’ve got. That is such a blessing, and I’m preaching to the choir.
If you’ve ever had to do that for your parents after the second one passed away and you don’t know where all of their stuff is, and it comes in forever, over a period of a year, year and a half, you’re finding new accounts because they never pulled it together and put it into a living trust, that is something you really need to consider. We don’t do living trust, so it’s not like something that we are making, it’s not a monetary thing for us, but we do refer you to reputable solid attorneys who do living trust and takes care of that really important area. You need to decide to get that done in 2025.
And one more thing before we leave this area of estate planning and what you’re going to leave before you go, you need to make sure that all of your beneficiaries are exactly who you want them to be. I can’t tell you how many times we have people bring in life insurance policies or annuities or other things that have beneficiary documents, 401Ks and whoever’s on that beneficiary document is the recipient of your money, the beneficiary document, it outweighs a trust. It outweighs anything else. It outweighs a new marriage. I’ve had people come in and they’ve been married for over 30 years, and I asked, who’s Barbara? And the guy said, well, that’s my first wife. How did you know Barbara was my first wife? And I said, because she’s still the beneficiary on your 401k. And guess what? That’s gone all the way to the Supreme Court multiple times. They won’t even take the case anymore. Whoever’s on the beneficiary document gets the money, even if it’s an ex-wife and they’re still alive, they get the money.
So you need to up upgrade, check, make sure, verify. It’s one of the things we do when people come in for a review with us is we always verify and update their beneficiaries. Don’t wait until it’s too late
I promise you every week, if you’ll give me a few minutes, I’ll do my best to increase your financial knowledge. And if we can help you, particularly about a situation, a question, anything you’ve got, go to the website, get an appointment, give us a call. We’ll see you next time!
