A new year—and a chance to start out fresh—but only if you seize the day and take advantage of the retirement opportunities that are available to you now. What steps can you begin taking now that will supercharge your retirement investing?
Maximize your retirement contributions
When I say maximize your retirement contribution, I’m not referring to the maximum contribution you’re allowed under either IRS regulations or your employer’s 401K or 403B plan, but the most you can afford to fund. If you already contribute the maximum, there’s no decision to be made, but if you’re contributing less, January is the perfect time to increase it. Here’s another reason for increasing your contributions early in the year…the earlier in the new year you increase you’re contributions, the less you’ll have to make on a per contribution basis. For example, let’s say you decide you want to increase your contributions by $2,000 for 2012; if you begin in January you’ll only need to increase your contributions (on a monthly basis) by $167. If you delay the change until July, you’ll need to increase your contributions to about $334 in order to reach your goal. Moral of the story: earlier is easier.
Check your portfolio allocations and rebalance if necessary
If you’ve set portfolio allocations to maintain adequate diversification with your retirement investments, January is the perfect time to rebalance them to make sure that you haven’t become overweight in some investment classes, and underweight in others. Rebalancing should be done at least once a year, and if you do it at the beginning of the new year, you won’t have to worry about it for the rest of the year—unless of course, you like to rebalance more frequently.
Get out of last year’s investments
A lot can change in a single year, especially when it comes to investments. The “investment guard” tends to change frequently, and the beginning of the year is an outstanding time to review investment performance to determine if certain investments have fallen out of favor, and to identify new ones that have greater potential. Since retirement investing is long-term investing at its finest, there may be a tendency to rely on very long time horizons to make your investment plays work. While that can happen with some investments, most tend to come and go, and last years winners can become this year’s losers before you know it.
Investigate non-tax sheltered retirement investments
This is especially important if you already max-out your retirement contributions. Any investment can be a retirement asset, whether or not they’re tax sheltered. Obviously tax sheltered status is better than non-tax sheltered, but non-sheltered is the next best investment. In addition, non-sheltered investments can provide a form of tax diversification in combination with your sheltered plans. It would provide you with a source of retirement capital that won’t be subject to taxation or minimum required withdrawals at retirement.
Implement a credible plan to eliminate your debt
Most people don’t think of paying off debt as retirement investing but it really is, albeit from a different direction. Though you’re not pouring money into appreciating or income producing assets, you are “investing” in debt elimination. A paid debt translates into a reduction of future expenses, and that means less investment income is needed to cover that expense. Building an income producing retirement investment portfolio is the first, best way to prepare for your retirement, but eliminating debt comes in a close second. This is especially true of mortgage debt, because it represents structural debt—the kind that eats up a big chunk of your income and does so for many years.
Invest your income tax refund in an IRA
Tax refunds are like found money, and the best thing to do with them is to invest them where they’ll make a long-term difference. And there’s no better place to do that than in a tax sheltered retirement plan, like a traditional or Roth IRA. If you don’t have an IRA, here’s your chance to make it happen. Invest your refund in one of these, and it will continue to provide you a monetary benefit for the rest of your life. Though the refund may not come in time to fund an IRA deduction for the most recent tax year, it will give you a benefit for next year. And even if the IRA contribution isn’t tax deductible, you’ll still have converted a one time windfall to a permanent asset! Make sure to check the Roth IRA contribution limits.
It’s time to get moving on these is now. If you wait to do them later, they’ll just go on the heap with other new years resolutions that weren’t!
Photo by Dan Moyle via Flickr