With the start of the new year in 2025, there is no better time to reassess your retirement goals and ensure you’re still on track. Whether it’s looking at increasing your contribution level with a 401(k) or evaluating paying off a mortgage, you should take this time to think about your goals.
As 2025 kicks off, you must consider the economic landscape and how it could alter your retirement plans. One important consideration is that a new incoming presidential administration will shake things up, and high inflation will still increase the cost of living. All of these factors should be included in your 2025 retirement reality check.
Look at the Economic Landscape
If you’re looking at one of the most important factors to consider as part of any retirement reality check-in 2025, it’s all about the economic landscape. While the hope is that inflation will eventually end, housing, food, and healthcare costs will make it essential to adjust your savings goals accordingly.
To be more specific, on average, healthcare plans have risen 4-5% annually, which means you need to factor in this increase. For example, if you are considering putting away around $300,000 in healthcare costs to cover 30 years of retirement, this number could require significant rethinking, which will lead to a more significant financial requirement to satisfy healthcare coverage.
In addition, considering stock market volatility, a new presidential administration, and possible changes to tax policies and Social Security over the next 365 days, you need to look at the entire economic landscape starting now.
Reassess Retirement Income Needs
One of the most important reviews everyone should perform at the start of 2025 is a hard look at their monthly and yearly expenses. This review will help you better understand how much of your current salary you will need to sustain your current lifestyle. Experts, such as the CEO of Financial Plan in Bellingham, Washington, say you should consider 70-90% of pre-retirement income, but this number can vary based on your situation.
Building on this idea, the start of 2025 is also an opportunity to evaluate where you are regarding your income savings progress. Conventional thinking says that by turning 50, you should have as much as 6 times your annual salary saved. By the time you turn 60, this number jumps to between 7.5 and 13.5 times your pre-retirement gross income level, depending on how much of your current expenses can go away.
You also want to ensure that these savings include your 401(k) contributions, triple-checking that the contribution level aligns with your retirement goals. The most important thing about your income savings is that you are still factoring in contributions to assist with future costs.
Adjust Your Retirement Age
With increased life expectancy due to improved medical procedures and technology, retirees must ensure they plan for 25-30 years of savings. This might mean adjusting their planned retirement age, which they need to know sooner rather than later.
Such an action might allow you to increase the amount of Social Security benefits if you delay your retirement age from 67 to 70. Every year, if you delay past the full retirement age, you will see an 8% annual increase, which can lead to a much larger overall payment.
Adjusting your retirement age can also enable for a few years of 401(k) contributions and employer matching. This extra income could be the money that helps you offset increased inflation and ballooning healthcare costs. Even part-time work can generate significant extra income, boosting your retirement savings.
Rohan Sharma, Vice President of retirement income at Ameriprise Financial, says that working longer and retiring later can significantly impact your retirement lifestyle. Depending on your retirement timetable, you need to consider this at the start of the year.
Take Actionable Steps
If you’re serious about performing a 2025 retirement reality check, you can utilize websites like Vanguard or Fidelity to help you project savings growth and your income needs. These tools will give you a quick review of where you stand today based on your current figures.
Once you know where you stand with these website retirement calculators, you should contact a professional financial advisor who can help you plan specifically for your situation.
This same financial advisor can also help you create a legacy plan that might allow you to ensure the proper beneficiaries are set up to receive any remaining money upon death, so it goes to the right people and avoids unnecessary taxes and legal considerations.
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