The start of the year always brings a sense of excitement, infused with the promise of a fresh start and renewed motivation. But this period is also fraught with uncertainty, particularly for those planning for retirement.
2024 is no exception, with ongoing concerns about inflation and interest rates coupled with a presidential election. Given the complexities of the year ahead, it’s essential to draw upon expert insights to make well-informed decisions.
I am fortunate to have curated a network of 230 highly qualified registered investment advisers (fiduciaries) whose expertise spans various key areas, including maximizing savings and investments, minimizing taxes and ensuring robust estate planning.
So, leveraging my Wealthramp network, I tapped into five leading retirement planning experts, asking them about their current strategies to best prepare their clients for the challenges of 2024. Here’s what they said:
Consider the advantages of Roth conversions
The allure of Roth IRAs lies in their provision for tax-free withdrawals. Recognizing this advantage, Brown advises individuals age 55 to 72 to consider converting smaller amounts of your traditional IRA to a Roth while in a lower tax bracket before required minimum distributions (RMDs) and Social Security benefits begin.
This strategy is particularly beneficial for those planning to leave an inheritance. By opting for a Roth IRA, heirs have the option to defer withdrawals, avoiding the necessity to deplete the account within 10 years and facing hefty taxes, a common scenario with traditional IRAs.
Brown emphasizes the importance of timely action, especially regarding backdoor Roth IRA conversions, a strategy often used by high-income earners who are ineligible to contribute directly to a Roth IRA. They can instead contribute to a traditional IRA and subsequently convert it to a Roth. “Many investors are contributing after-tax dollars into traditional IRAs, and the money is sitting in accounts that can be converted to a Roth IRA without double taxation,” she advises.
She further clarifies, “As long as there aren’t other rollover IRAs involved, it may be best to convert already-taxed money before regulators eliminate this loophole. If you have pre-tax funds from a previous rollover, transfer those to your company 401(k) prior to conversion to mitigate the tax implications on the pre-tax IRA funds.”
Brown also points out a commonly overlooked opportunity: after-tax money in company retirement accounts. “Many investors don’t realize that these can be rolled over into a Roth IRA, rather than being cashed out,” she says.
Rebalance your portfolio
“Rebalance, rebalance, rebalance,” is the mantra Marc Lieberman, portfolio manager at Shorepine Wealth Management, stresses. He believes that while it might seem like routine advice, the act of fine-tuning your investment portfolio can yield significant benefits. Lieberman underscores the importance of this process, especially after several years marked by high market volatility.
He observes that many investors’ portfolios have likely drifted away from their intended allocations. “For example, fixed-income returns have been negative since July of 2020,” he notes.
With the possibility of the Federal Reserve reducing interest rates, Lieberman anticipates a positive turn for fixed-income markets. He warns that many investors might find themselves underweight in this asset class. “If you haven’t properly rebalanced your portfolio recently, now is a great time to do so,” he advises.
Lieberman also cautions investors to brace for heightened volatility in 2024. “In a year where we will see a presidential election, the Federal Reserve likely pivoting from raising to cutting rates, softer labor markets, weaker corporate profits and consumers running out of excess savings, I would expect markets to be volatile.”
To navigate this volatility, he suggests diversifying with gold and short-term Treasuries: “Gold can serve as a stabilizer in turbulent times, and the Treasuries could yield 3% to 5%, offering a safe harbor while waiting for more favorable conditions.”
Explore private debt for enhanced return potential
Eric Hutchens, president and chief investment officer at Allodium Investment Consultants, spotlights private debt as a key retirement income idea for 2024. “This type of fund offers attractive yields with great diversification benefits,” he asserts. Hutchens notes that private debt funds, by holding their loans to maturity, are not as susceptible to the market volatility that affects publicly traded stocks and bonds.
He elaborates on the variety within private debt funds, ranging from lower to higher risk profiles. “There is a wide spectrum of private debt funds, from less risky to more risky, and finding a high-quality private credit manager can add significant diversification and returns beyond traditional stocks and bonds,” Hutchens explains.
However, he also highlights a potential trade-off in this asset class. “Investing in this asset class typically involves giving up some liquidity since the managers are holding the loans to maturity. However, the investors are compensated by an ‘illiquidity premium,’ which can add to their returns over time.”
Utilize high rates with a laddered approach
Financial adviser Melissa Walsh from Clarity Financial Design observes a growing preference among retirees and those nearing retirement for low-risk income options. “My first tip is to go ahead and lock in today’s attractive interest rates. Certificates of deposit and municipal bonds are both still appealing right now,” she advises. Currently, FDIC-insured CDs offer yields between 4% and 4.75% for maturities ranging from one to five years.
Walsh also highlights the tax benefits of municipal bonds for those anticipating a higher income tax bracket during retirement. “For those who expect to be in a higher income bracket during retirement, special consideration should be given to high-quality municipal bonds because interest from these bonds is exempt from federal tax,” she explains.
For managing investments and retirement income, Walsh suggests a “bucket approach.” She details this strategy:
“By segmenting funds for near-term needs and long-term investment, you’ll be better prepared to stick with your plan and withstand inevitable market volatility. In the first bucket, keep funds needed to cover your living expenses for the next 12 months and your emergency reserve funds in conservative interest-paying investments, such as a high-yield savings account or money market fund.
“In the second bucket, plan for near-term cash needs, such as those occurring in the next one to five years, by laddering CDs or high-quality bonds that mature when you expect to need the cash. Lastly, invest the remaining retirement portfolio in a diversified mix of stocks and bonds that suits your risk tolerance.”
Navigate changing tax laws without attempting to time Congress
Robert Carroll, managing director at Carnegie Investment Counsel, advises caution and strategic planning in light of evolving tax laws. “This year, avoid the urge to ‘do something,’” he firmly states.
With the Tax Cuts and Jobs Act of 2017 set to expire at the end of 2025, Carroll acknowledges the flood of strategies likely to emerge in response. However, he cautions against reactionary moves based on speculations about congressional actions. “The reality is no one knows for sure what will happen. For example, will the current provisions such as increased standard deduction limits be continued?”
Carroll argues that Congress often addresses issues closer to deadlines, suggesting there will be ample time to understand and adapt to any changes. He advises, “Take time now to better understand your tax situation. Do you itemize or take a standard deduction? What is your effective tax rate? Marginal tax rate? These variables provide important context for developing your tax planning strategy as any proposed policies are developed.”
He also highlights a significant opportunity for higher-income or net-worth families. With income limits sometimes restricting the ability to fund a traditional Roth IRA, Carroll points out, “More company retirement plans allow participants to make Roth contributions. The SECURE 2.0 Act, passed in 2022, expanded this feature, and now some plans offer the ability to contribute a certain amount of after-tax dollars and perform ‘in-plan’ conversions to a Roth.”
Carroll emphasizes the importance of integrating any Roth funding strategy into an overall financial plan, ideally with the guidance of a qualified tax professional.
Of course, not every move mentioned above is right for every person. You’ll want to consider your own circumstances and consult with a fee-only financial adviser to determine what adjustments are right for your situation, ensuring that the actions taken align with your specific financial goals and circumstances.