Year-End Planning for Retirees

Hello friend. As we approach the coming year, let’s look at year-end planning for your finances.

Asset Allocation
One crucial aspect to consider is asset allocation. It entails dividing your money among investments like stocks, bonds, and cash to create a well-rounded portfolio that may help you pursue your financial goals while managing risk.

In simple terms, asset allocation means finding the right balance for your investments. As a retiree, you’ll want to allocate your portfolio to match your comfort level with investment risk; for instance, you might allocate 60% of your portfolio to stocks, 35% to bonds, and keep 5% in cash or cash equivalents. However, please note that this is just an example, and your allocation could differ based on your circumstances and risk tolerance.

Over time, your portfolio allocation can drift away from your intended targets. Some investments may perform exceptionally well – or not so well, causing them to take up a larger or smaller portion of your portfolio than planned. This imbalance can expose you to more risk than you’re comfortable with, or you may create missed opportunities for gains.

That’s where rebalancing comes in. It involves selling investments that have done well and buying more of the ones that have lagged. Investments tend to work in cycles, meaning an investment that is out of favor today has the potential to be in favor in the future and vice versa. By rebalancing, you are maintaining the desired allocation of your portfolio and managing risk.

Risk Tolerance & Your Goals
When determining your investment strategy, it’s vital to consider your risk tolerance and goals. Risk tolerance refers to how comfortable you are with the ups and downs of investing, known as volatility. It’s normal to feel a little wary of volatility – we all do! You can become more comfortable with investment risk by working with a trusted advisor and enhancing your investing knowledge.

Your goals are equally important. What are you aiming to achieve with your investments? Are you trying to maintain a comfortable retirement, save for a dream vacation, or something else? Aligning your investment choices with your goals will help steer your asset allocation in the right direction. The clarity concerning your hopes and dreams that both you and your have, the better prepared you will be to position yourself to pursue them.

ROTH Conversions
Now, let’s talk about ROTH conversions, an option that can benefit retirees significantly. A ROTH conversion involves moving funds from a traditional IRA or 401(k) into a ROTH IRA. The potential benefit? Tax-free income in the future! Additionally, you gain more control over how and when you distribute your funds. When the ROTH funds pass to your beneficiary, they can enjoy the same tax-free advantages.

You can potentially lower your lifetime tax bill by spreading out ROTH conversions over several years. For instance, if you find yourself in a lower tax bracket this year, you might choose to convert a portion of your traditional IRA into a ROTH. This way, you pay taxes at your rate now and avoid potentially higher tax rates in the future. This strategy offers flexibility and can help manage your tax burden. However, depending on your circumstances, a ROTH may be beneficial even if you are in a higher tax bracket.

It’s important to remember that financial planning can be highly nuanced; therefore, consulting with a financial advisor and tax professional is crucial to determine if a ROTH conversion is a prudent move for you.

Tax Loss Harvesting
Next, let’s explore tax loss harvesting – a strategy that can help minimize taxes and potentially improve investment returns. It involves selling investments that have decreased in value to offset capital gains or reduce taxable income. The goal is to maximize tax advantages and potentially lower your overall tax bill. By “harvesting” those losses, you can use them to offset gains from other investments, thus reducing your tax liability.

For example, let’s say you bought a stock for $10,000, which declined in value to $8,000. Instead of simply holding onto the stock and hoping for a rebound, you can sell it to realize a $2,000 capital loss. You can use this loss to offset any taxable gains from other investments, effectively reducing your tax liability. Then, you would use the $8,000 to make a different, but typically similar, investment.

While tax loss harvesting can be an effective strategy, you should consider the potential downside. For instance, if the market rebounds and the investment you sold at a loss bounces back, you might miss out on potential gains. Additionally, suppose you repurchase assets after-tax loss harvesting. In that case, you may realize short-term gains, which could increase your tax liability. Therefore, it’s crucial to weigh the potential benefits against the possible downsides carefully.

The Wash-Sale Rule
The wash-sale rule is worth keeping in mind when considering tax loss harvesting. This rule states that if you sell a security at a loss, you cannot repurchase it – or a “substantially identical” investment – within 30 days and still claim the loss for tax purposes. Therefore, you can’t sell a stock to claim the loss and immediately repurchase it to avoid missing out on any potential gains. The wash-sale rule prevents investors from manipulating the system. Still, being aware of this rule is essential if you’re considering tax loss harvesting.

That wraps up our discussion on year-end investment planning for retirees! Depending on your needs and circumstances, some of these strategies may or may not be appropriate, so please consult a wealth advisor who can tailor a strategy to you.

Our mission is to identify goals and nurture behaviors so that together, we can confidently discover and pursue dreams. If you’re looking for financial guidance, schedule a call today.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Asset allocation does not ensure a profit or protect against a loss.

Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.

All information is believed to be from reliable sources; however, LPL Financial and Enduring Wealth Advisors® makes no representation as to its completeness or accuracy.

Securities are offered through LPL Financial, Member FINRA/SIPC. Investment advice is offered through Enduring Wealth Advisors, LLC, a registered investment advisor. Enduring Wealth Advisors, LLC and Enduring Wealth Advisors, INC are separate entities from LPL Financial.


This article was prepared by WriterAccess.

Edited by Mark R Tracy, MBA, CFP® from Enduring Wealth Advisors® in collaboration with and Grammarly