New Year’s Tweaks

Greg Spears

LET’S NOT CALL THEM resolutions because that imposes a sense of obligation. Rather, think of these as adjustments that could give you—and maybe your kids—a smoother ride in 2022:

  1. Check the beneficiaries on your employer’s retirement plan, IRAs and life insurance policies. Sometimes money winds up with an ex-spouse or maybe a younger child gets left off the list. This is an easy fix—while you’re alive. After that, it’s a mess.
  2. How much do you pay for your investments—in dollars, not percentages? If it isn’t clear from your annual statement, why not give the investment company a call? If the answer seems large, ask how it might be reduced. As Vanguard Group founder Jack Bogle liked to say, “In investing, you get what you don’t pay for”—because lower costs leave more money for the investor.
  3. If you have a young adult home for the holidays, one who has a job with a 401(k), ask if he or she knows the match. If that draws a blank, explain that matching contributions are “free money.” A third of retirement plan savers miss the full match—even when they’re automatically enrolled in the plan.
  4. The 401(k) contribution limit is increasing by $1,000 to $20,500 in 2022. If you get a year-end raise or bonus, this could be a great time to boost your contribution rate without feeling any loss in income. The contribution limit is $27,000 if you’re age 50 or older and your plan allows catch-up contributions.
  5. Many experts advise rebalancing back to your target asset allocation once a year or so. This controls your portfolio’s risk level, while pushing you to sell a sliver of your winners and add money to lagging investments. This year, it would likely mean selling stocks to buy bonds. If that sounds terrible, think of it this way: Sell high and buy low. There are no taxes for rebalancing within a 401(k), IRA or other tax-deferred accounts. But in a taxable account, make sure you understand the tax cost before making any investment sales.
  6. Look up the performance of your actively managed mutual funds. If they’ve consistently earned less than their benchmark, maybe it’s time to join the exodus to indexing. Again, there are no taxes owed if you switch funds within a 401(k) or IRA, but you’ll want to know the tax costs before making any changes in your taxable account.

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