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Build peace of mind by planning ahead for 2025.
Bạn đang xem: 4 Retirement Income Planning Tasks to Prepare for 2025
Are you worried about how potential economic volatility in 2025 could impact your retirement income? If you’re retired or plan to retire in the next several months, you can help put your mind at ease by completing four planning tasks in the next several weeks.
Here’s the economic backdrop that influences these tasks:
- Stock market investments have appreciated significantly in the past several years, including in 2024. However, the outlook for 2025 and beyond is confusing. Some experts believe that stocks have reached all-time highs and that historical indicators predict a pullback in the near future. Other experts predict the market will continue to be hot.
- Some experts are predicting a revival of inflation with President-elect Trump’s policies regarding tariffs and tax cuts.
- The direction of interest rates during 2025 is also uncertain. Some experts predict another interest rate cut by the Fed. However, potential future tax cuts advocated by Trump could exacerbate the federal debt and act to drive up interest rates.
You can achieve some peace of mind by adopting strategies that don’t require you to own a crystal ball that accurately predicts the direction of the stock market, inflation, and interest rates. Instead, focus on building a portfolio of protected and variable retirement income that meets your living expenses, with protection from surprises.
A word of advice: It’s best to consider these tasks in their entirety, since they can all influence each other.
Review Your Strategy For Generating Income From Savings
If you’re generating variable retirement paychecks with systematic withdrawals from invested assets, review and potentially reset the amount you plan to withdraw in 2025. A dynamic withdrawal strategy is a best-practice technique that applies a withdrawal percentage to the value of your retirement savings at year-end 2024 to determine the amount of your withdrawals for 2025. The IRS required minimum distribution is a common example. If your assets have appreciated significantly, you might be able to increase your withdrawal amount for 2025, compared to 2024.
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Consider Rebalancing Your Retirement Income Portfolio
Review the amount of protected income you receive from Social Security, pensions, annuities, and systematic withdrawal strategies from fixed-income assets, and compare it to the amount of the variable retirement paychecks you receive with systematic withdrawals from stock market investments. Do you have enough protected income that enables you to feel confident to ride out a stock market decline?
If you’d feel more comfortable with more protected income, you could rebalance the assets you have invested in stocks and fixed-income assets. “U.S. stocks have had a phenomenal run, making this an excellent time to consider reducing risk in a portfolio by reducing U.S. equity assets in favor of cash and bonds,” suggests Christine Benz, director of personal finance at Morningstar and author of the recent best-selling book How to Retire. “Retirees who haven’t rebalanced their portfolios in several years should consider doing so (before the market does it for them!).”
Another possibility for rebalancing your retirement income portfolio could be to buy a low-cost income annuity or fixed-index annuity that would increase the amount of your protected income.
Review The Ways Inflation Could Impact Your Retirement Income
If you’re worried about future inflation, here are a few strategies to consider:
- Invest a portion of your fixed-income assets in Treasury Inflation-Protected Securities, aka TIPS, and Series I Savings Bonds. Both these investments include adjustments for inflation. This could be part of your rebalancing strategy as described above.
- If you want to take this idea one step further, Benz has a suggestion: “Retirees may want to build a runway of seven to 10 years of withdrawals from safer assets such as cash, high-quality short- and intermediate-term bonds, TIPS, and Series I Savings Bonds.”
- Convert some of your invested assets to lifetime income annuities that have built-in annual increases.
- Cautiously invest in stocks that have the potential to increase for inflation. If you’re worried about stock market volatility in 2025 and beyond, mutual funds or ETFs that are devoted to dividend-producing stocks have historically experienced less volatility than growth stocks.
“If you haven’t yet started your Social Security benefits, the prospect of higher inflation underscores the importance of making smart Social Security filing decisions,” says Benz.
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As a result, consider maximizing the amount of your inflation-protected income by delaying the start of these benefits until age 70. For example, you could devote fixed income assets to a Social Security bridge strategy or work part time until you start your Social Security benefits.
Make Sure Your Retirement Income In 2025 Will Cover Your Living Expenses
Review your budget for 2025, and determine whether you’ll still satisfy the common-sense formula for retirement income security:
- I > E, or income greater than expenses
Estimate whether you’ll have any big-ticket costs during 2025 that could cause your living expenses to exceed your income. Examples include expensive house or car repairs, replacing a car, or increased costs for health care or frail care.
In particular, realistically evaluate your home to determine whether it’s becoming increasingly expensive and difficult to maintain. If so, consider downsizing to a less-expensive home that better meets your needs in retirement.
Another idea for two-car couples is to consider whether you really need both cars for your day-to-day needs. Eliminating one car may result in significant savings. On the fun side, you might also want to plan and budget for travel or other fun activities in 2025.
Spend the time it takes to make sure you’ll be OK financially in 2025 and beyond. Doing so will help you feel confident that you’ll enjoy the new year!
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