Wealth Solutions Report – Year-End Adjustments To Maximize The Client Retirement Portfolio

With less than four months to go before we ring in 2025, the approaching year end serves as a reminder for advisors and clients to check on portfolio performance, consider adjustments in response to developing trends, review strategic options for tax planning and adapt for current conditions.

Especially for clients who are nearing or in retirement, portfolio adjustments can make a significant difference in their quality of life in both the near and long term. Three executives at affiliates of Dynasty Financial Partners walk us through key year-end retirement planning considerations.

Key Changes And Trends For Retirement Planning

As we near the end of the year, Matt Liebman, Founding Partner and CEO of Amplius Wealth Advisors, says that we must monitor legislative and regulatory actions after the election that may impact financial planning.

Matt Liebman, Founding Partner & CEO, Amplius Wealth Advisors Also looking to legislative issues, Ryan Kemp, Account Vice President at Cyndeo Wealth Partners, points out the current higher levels of the federal estate tax exemption are set to expire in 2025. “It can take months for a complicated estate plan to be restructured and executed and assets to be moved. The closer we get to the end of next year without it looking like Congress will act, the harder it will be to get an estate plan change implemented in time.”

Robert S. Alimena, Vice President, Private Wealth Advisor at Procyon Partners, notes that increasing expenses due to inflation have impacted clients’ financial plans. He explains that client costs continue to increase, although at a slower rate than the past few years, which pushes up withdrawal needs. “As withdrawal needs increase, individuals need to ensure their asset allocation continues to match up with their personal benchmark objectives to achieve their goals.”

Alimena points to clients’ cash allocations. “Right now money market rates are attractive, but in a falling rate environment that attractive rate could change quickly and in order to ensure their portfolio is achieving the desired return profile, re-allocating cash to asset classes with better long-term growth prospects is prudent in avoiding opportunity costs.”

Adjusting Retirement Strategies For Current Conditions

Kemp says that cash is important when adjusting client portfolios to current conditions. He recommends holding funds for several years of retirement needs in cash and cash alternatives. “It appears that we are continuing to move toward an eventual Federal Reserve rate cut and investors should prepare their safer money and fixed income holdings for a normalization of the yield curve.”

Due to the rate hiking cycle, Alimena says the fixed income part of a portfolio is “now at a point where it can now do more of the heavy lifting in helping clients achieve their target portfolio returns.” He points out that falling bond prices and strong equity returns may have pushed portfolios “out of range with regards to their risk tolerance and expected withdrawal rate.

He recommends reviewing clients’ portfolio allocations as well as their spending needs. “This might include adding non-correlated assets through the use of alternatives to ensure their investment assets are properly diversified and minimize volatility relative to their personal target returns.”

Liebman states that short-term economic conditions shouldn’t “have a major impact on solid long-term financial plans that balance both short-term and long-term goals.”

Tax Moves Before Year-End

Approaching the end of 2024, Liebman says that tax considerations are best discussed with clients one-on-one, and he cautions advisors and clients to ensure their required minimum distributions are complete.

Kemp notes that Roth conversions and tax loss harvesting should always be considered at the end of the year. “Another often overlooked opportunity is to max out a Health Savings Account, if eligible, and invest those funds for later.”

Alimena proposes that advisors and clients consider adding after-tax contributions to their 401(k) plans. While the current limit for individual contributions is $23,000 (or $30,500 if over 50), Alimena explains that the overall contribution limit is $69,000, which could allow up to $46,000 additional after-tax dollars. “The employee can then roll these after-tax contributions into a Roth IRA when they retire achieving the mega backdoor Roth.”

Alimena also suggests another strategy for clients with 1099-NEC income or who are self-employed: the Solo 401(k). “Even if the individual is maxing their employee contributions through their W2 job, they could still make a profit sharing contribution into their Solo 401(k), deferring taxes on up to an additional $69,000 depending on their self-employed income. For people in a higher tax bracket, this strategy can allow them to defer more funds for retirement, reducing their taxable income and increasing their nest egg.