How You Might Need to Adjust Your Retirement Plan in 2024
Here are some of the challenges that could lie ahead this year, plus some suggestions for how you might deal with them to help secure your financial future.
Looking forward to the new year, my advice is to be, well, flexible. It’s difficult to foretell the future, even when the future is tomorrow. So, predicting (guessing) what the next year will bring has historically been proven wrong, often by a lot. As we review ideas about 2024 from several market observers, remember that we will undoubtedly need to adjust and rework our retirement plans.
Americans face retirement income shortfalls
Vanguard’s Retirement Outlook study points out that workers who earn more will likely have more savings for retirement. Even so, most of us have to be aware of potential shortfalls. The report suggests that sensible investments in the markets, accessing home equity, and even working longer might all be steps to take. Sound familiar?
For some advice on what to do about preventing your own shortfall, read my article Annuity Payments Are 30% to 60% Higher: Time to Reconsider to learn about ways to fill the gap in retirement income. To get a quote for yourself, visit the Go2Income calculator.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Calculate your own safe withdrawal rate
Every year, Morningstar recalculates its safe withdrawal rate that retirees can use to predict whether their portfolios will last 30 years. Its rate is back at 4%, up from 3.8% in 2022. The financial services company makes adjustments based on its prediction of inflation, bond yields and stock prices.
Morningstar says the new rate assumed that 20% to 40% of a retiree’s portfolio was invested in equities and the remainder in bonds and cash. In tests, this allocation resulted in a 90% probability of success.
I shared my thoughts about the 4% rule in the article What’s Your Retirement Number? Don’t Just Go by the 4% Rule. Studies have shown that three-quarters of all financial advisers rely on the 4% rule when offering guidance to their clients. There are issues with “one-size fits all” rules that impact the 3.2 million Baby Boomers who retired last year — and had their own, individual set of objectives.
Could traditional pensions make a comeback?
With economic ups and downs that are increasingly more difficult to predict, those good, old pension plans are looking even better. Only 15% of private industry workers had access to a pension plan in 2022, according to the Bureau of Labor Statistics. A recent New York Times article noted that economists expect that Baby Boomer retirements will force employers to offer new types of pensions to hire and keep employees.
My article Become Your Own Pension Manager discusses managing your retirement plan to get some of the benefits of a pension. You can also read my article Curious About a QLAC? SECURE 2.0 Act Gives This Annuity a Boost to get more information about converting your 401(k) to an annuity-centric plan that acts more like a pension.
The long-term care insurance quandary
You may have noticed that private insurers often do a poor job of providing affordable long-term care insurance for the millions of retirees who might need home health aides, assisted living or other types of assistance with daily living. Admittedly, it’s easy to see that most people will require some sort of long-term care later in life. Figuring out specifically who will need it is the tricky part. The article Long-Term Care Insurance: To Buy or Not to Buy? can help you decide whether you should purchase.
However, you might also find that your retirement plan can pay for more than it could just a few years ago, as our couple discovered in my article How Finances Can Improve for Retirees — And the Next Two Generations. Specifically, they considered a home equity conversion mortgage (HECM), also called a reverse mortgage, which can provide: 1. Additional cash income to pay for things like LTC premiums or other costs, and 2. Additional liquidity later in life if you pay interest on your HECM.
U.S. mortality rate remains high
A Swiss Re executive expressed concern to Think Advisor in November that the U.S. death rate remains above the pre-pandemic rate. That trend might lead to higher costs for services like insurance.
My article How to Get More Retirement Income From Your 401(k) gives tips on building more income with an integrated approach of investments and annuities in order to cover higher costs. The question we can also ask is whether increased mortality will translate into better annuity payments.
What AI might look like in 2024
A New Year’s hope from Ge Wang, a Stanford University senior fellow, is “that we can have the wherewithal to continue to ask the hard questions, the critical questions about what we want from artificial intelligence in our lives, in our communities, in education, in our society.” Ge predicts that more types of generative AI technology, such as ChatGPT, are going to be offered in work, play and communication.
I have used AI tools, but so far, they aren’t enough to replace your adviser — or your own judgment. In my article Can AI Plan Your Retirement Better Than I Can?, I wrote, “The biggest difference, so far, between real people and anything the programmers can devise is that people can imagine and create their our own philosophy and strategy about how to save and invest for retirement to meet our diverse personal circumstances.” In other words, we’re still smarter.
Don’t rely on stock market predictions
Analysts love to predict where the stock market will go at the beginning of the year. They got 2022 wrong, and they totally missed on 2023. So don’t rely on predictions for short-term market moves, because there is no evidence that anyone can reliably predict the market’s movements.
A reasonable way to diversify as you protect assets is to follow the guidelines in my article For Sustainable Retirement Income, You Need These 5 Building Blocks.
Happy New Year!
No one will be able to make sense of all the sometimes-conflicting predictions. But you can create a plan for retirement income based on your own circumstances and your own ideas about how much safe income to build into your plan. You can also generate a financial legacy, determine how to pay for late-in-life health care and find the money to maintain your home.
Visit Go2Income to get started on a plan for you and your family. Creating your financial future will help you prepare for 2024, too. One of our early articles in 2024 will be about taxes — and how to keep as much income as possible for yourself. Other articles in 2024 will cover some new elements added to Go2Income to not only save on taxes but manage retirement risk.
Here’s to a secure and safe 2024!
Related Content
- The Four Headwinds of Retirement and How to Combat Them
- Five Things I Wish I’d Known Before I Retired
- Retirees’ Anti-Bucket List: 10 Experiences You Don’t Want
- Do You Have at Least $1 Million in Tax-Deferred Investments?
- Nervously Nearing Retirement? Four Do’s, Four Don’ts and One Never
-
S&P 500 Hits New High Before Big Tech Earnings, Fed: Stock Market TodayThe tech-heavy Nasdaq also shone in Tuesday's session, while UnitedHealth dragged on the blue-chip Dow Jones Industrial Average.
-
4% and Chill? Find Out If This Distribution Rule Fits Your RetirementTake this simple quiz to discover whether the 4% Rule will work for you in retirement.
-
Oregon Tax Kicker in 2026: What's Your Refund?State Tax The Oregon kicker for 2025 state income taxes is coming. Here's how to calculate your credit and the eligibility rules.
-
I'm an Estate Planning Attorney: These Are the Estate Plan Details You Need to Discuss (And What to Keep Private)Gen Xers and Millennials would like to know if they're going to inherit (and how much), but Baby Boomers in general don't like to talk about money. What to do?
-
I'm a Financial Adviser: This Is How You Can Minimize the Damage of Bad Market Timing at RetirementPoor investment returns early in retirement on top of withdrawals can quickly drain your savings. The ideal plan helps prevent having to sell assets at a loss.
-
'You Owe Me a Refund': Readers Report Challenging Their Attorneys' BillsThe article about lawyers billing clients for hours of work that AI did in seconds generated quite a response. One law firm even called a staff meeting.
-
7 Questions to Help Kick Off an Estate Planning Talk With Your ParentsIt can be hard for aging parents to discuss estate plans — and for adult kids to broach the topic. Here are seven questions to get the conversation started
-
Down But Not Out: 4 Reasons Why the Dollar Remains the World HeavyweightThe dollar may have taken a beating lately, but it's unlikely to be overtaken as the leading reserve currency any time soon. What's behind its staying power?
-
What Not to Do After Inheriting Wealth: 4 Mistakes That Could Cost You EverythingGen X and Millennials are expected to receive trillions of dollars in inheritance. Unless it's managed properly, the money could slip through their fingers.
-
'The Money Prism' Solves Retirement Money's Biggest Headache: Here's HowThis simple, three-zone system (Blue for bills, Green for paycheck, Red for growth) helps you organize your retirement savings by purpose and time.
-
No, AI Can't Plan Your Retirement: This (Human) Investment Adviser Explains WhyAI has infinite uses. But creating an accurate retirement strategy based on your unique goals is one place where its possibilities seem lacking.
