Work Your Core for 2024
With a new year comes new opportunities to address core savings and money management strategies that can get your financial future in
tip-top shape.

While most of us relate core strength to physical fitness, there’s also an important aspect of your financial life that has to do with your core. That would be your core spending and expenses, and what better time to address those principles than heading into the New Year?

Differentiate Between What You Can (and Can’t) Change

Smarter saving starts with smarter spending. “How much do I need to retire?” is perhaps the most common question in financial planning. Some think it’s a fixed amount, like $1 million or $3 million. Others believe it has to do with withdrawing a certain percentage of their assets every year. The truth is that the amount of money you need for retirement is 100% dependent upon how much you spend during your retirement years (and when it’s spent).

Spending can be broken down into two basic categories: fixed and discretionary. Fixed expenses are those that can’t be avoided – obligations like mortgages, car payments, rent, and utilities. Discretionary expenses include restaurants, travel, gifting, and entertainment. Your discretionary expenses are much easier to curb than your core expenses. For example, you can always cut back on the number of times you eat out or select a less expensive restaurant.

It is important, however, to recognize that for many people, the distinction between fixed and discretionary expenses may be blurred. Insurance payments are often thought to be fixed, but they usually aren’t – when’s the last time you sat down with your insurance agent to review each policy? Could you reduce your premiums if you increased your deductible, inquired about a multiple-car discount, reviewed your miles driven against miles assumed by the policy, or assessed the actual replacement cost of your home? Oftentimes, clients may own altogether unnecessary life insurance policies as they age, due to the accumulation and growth of their other financial assets.

A close inspection of all fixed and discretionary expenses could allow you to save more now, thereby increasing the length or spending level of your retirement.

Save Smarter, Not Harder

Maxing out your tax-advantaged accounts ensures that you’re making the most of each dollar of savings. Too many people fail to fully appreciate the importance of saving pre-tax. The $5,000 you may want to save to meet your annual target may be closer to $7,000 of pre-tax earnings. In other words, you’d be able to save 40% more through a retirement plan than a taxable brokerage account. And, due to how the accounts are taxed during accumulation, your rate of return will be higher on the pre-tax savings. Over time, those incremental benefits can compound into a huge number.

The Discipline Delta

The biggest difference between successful and unsuccessful savers will almost always be discipline. Heading into 2024, ensure you’re committed to staying disciplined about your spending habits and saving strategies. Usually, great spending habits not only set you up better for retirement but also carry over into retirement. When you’re saving more than you’re spending, the delta widens over time, giving disciplined savers and spenders more flexibility about when and how they want to retire.

Window of Opportunity

Another core concept to consider in 2024 applies to anyone who has retired but hasn’t reached the RMD age of 73, at which point they would be forced to take money out of their retirement assets each year. Anyone in this situation should consider withdrawing enough from their retirement savings each year to remain in the lowest income tax bracket (10-12%). That way, when you turn 73, your RMDs would be calculated off of a lower balance, which would then allow you to pay lower Medicare premiums (among other advantages). Another tax savings strategy is a Roth conversion, i.e., moving IRA distributions into your Roth IRA, which has no RMDs. In addition to the added flexibility of the Roth, you can also pass these accounts to your children without worrying about the IRS’s ten-year distribution rule for inherited IRAs. The Roth IRA can then grow and remain tax-free for those ten years.

At the beginning of 2024, take a look back at 2023 to review your core and discretionary spending. Doing so can help to ensure you’re proactively positioned to succeed, not only for yourself, but for your loved ones as well.

Advisory services offered through The Nemes Rush Group LLC. Securities offered through J. Alden Associates, Inc., member FINRA/SIPC. The Nemes Rush Group LLC and J. Alden Associates Inc. are not affiliated. The information presented is for informational purposes only. Please consult your tax professional to determine the tax effects on your personal situation prior to making any investment.

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