2025 could bring economic changes with the potential to hit the wallets of millions in various ways.
A series of Advantages of stock market Along with the damage from the devastating hurricanes, retirement investments have been hit hard. Which leads to huge repair costs. And making thousands of homes virtually uninsurable.. Meanwhile, there is the incoming Trump administration Look at deep tax deductions side by side Rollback of newly constructed guardrails around consumer finance.
While uncertainty abounds in the coming year, “people can empower themselves more by focusing on the things they can control—things that will be valuable no matter what happens in the world.” ” said Kevin Mahoney, founder of Illumint, a Washington, DC-based financial planning firm.
Here are a few ways to put yourself in the best financial position for whatever the next 12 months may hold.
Look for higher returns as interest rates fall.
Interest rate coming downand the impact should be felt more widely in the coming months by anyone with a savings account, mortgage, credit card or car loan. For many borrowers, this will bring some relief from the nosebleed costs of carrying debt. But for many savers, that means less generous returns.
High-yield savings accounts still top out at around 4.5 percent, 2.7% annual inflation rate As of November. But as banks reduce interest payments to depositors, it’s important to make sure you stay competitive, said Malik Lee, managing principal of Felton & Peel Wealth Management, an Atlanta firm.
“This is one of the red flags I’ve been warning clients about with all money market accounts,” Lee said, referring to a popular type of deposit account that would limit debit transactions. is but often more profitable. “You’re sitting there thinking, ‘Hey, I’m getting 4 or 5% on this thing, because that’s where the rates were initially, and now I’m getting 3%.’
While banks usually notify customers about rate changes, those notifications can lag and some account holders may not turn them on. Earlier this year Bankrate Survey About two-thirds of Americans were earning the highest interest on their savings accounts.
The Federal Reserve is poised to cut rates but A slow motion is indicated Many had hoped so, and with President-elect Donald Trump’s economic proposals Increasing risks Of Fuels inflationthe path forward for interest rates is far from certain.
So Lee said now is a good time to consider certificates of deposit, which can lock in gains over a specified period. Start thinking about “what you need in daily liquidity versus what you need six months to a year out,” he suggests.
Money in a CD usually cannot be withdrawn without penalty before the account is fully matured, but customers One can find rates ranging from 4.25% to 4.65%According to Bankrate. And those interest rates can be locked in for anywhere from a few months to five years, eliminating the need to anxiously monitor other types of savings account rates for fluctuations.
Strengthen your emergency funds.
The economy has been unpredictable. Since the pandemic has recovered, and that is unlikely to change once President-elect Trump begins implementing his proposed agenda, which includes Clearing the new tariff And Mass deportations This can affect how customers pay for everything. Baked goods and beer To The houses.
Keeping extra funds Contingency is one of the most enduring principles of financial advice, and planners say it hasn’t changed. Samuel Dean, president and CEO of Dean Wealth Management, a financial advisory firm, said he typically urges clients to save enough to cover three to six months of living expenses. But workers in industries at risk of high turnover or mass layoffs should consider a bigger buffer, he said.
Dean and other planners said they’ve seen clients express more concerns about their financial well-being over the past year, a time when retailers also Competed with more budget-conscious buyers..
During emergencies, many people turn to family, friends and even strangers for financial lifelines. As was the case with two devastating hurricanes. This past fall. Even if you manage to avoid a crisis within the next year, Dan suggests thinking ahead if you’re called to help others in your life who might not be so fortunate. That way, he said, “you’re not straying from your goals, and you’re not sacrificing too much of yourself.”
Reevaluate your retirement strategy.
Many retirement savers with stock market-linked accounts have seen their balances grow over the past year, and despite Some recent tough days on Wall Street, Many investors remain optimistic. About the impact of the next administration.
But while that remains to be seen, there is already one belief that 401(k) holders can benefit from: Maximum contribution There will be an increase of $500. Next year, that tops out at $23,500 in annual pre-tax savings. The limit on catch-up contributions — the amount that older workers can add to their 401(k)s at the end of the year — is also increasing for those ages 60 to 63, effectively putting them on hold for retirement. Can increase contribution. to 14 percent from 2024.
The Republicans’ Tax Cuts and Jobs Act, enacted during Trump’s first term, is set to expire at the end of next year, a deadline that has already triggered changes in retirement planning: Fidelity Investments said it saw 45 percent year-over-year growth. Increase in Roth conversions As of last July, account holders were trying to avoid a potentially higher tax bill.
During the campaign, “I kept advising clients that now is the time to make a Roth conversion to take advantage, because when those rates go down, your tax rate will go up,” Kristin Uretig, Founder and Chief Planner of New York-based Brooklyn Plans. Converting an existing retirement account to a Roth IRA allows investors to take advantage of high-yielding stocks and zero-tax withdrawals instead of paying taxes on those savings contributions.
But Uretag said there is now less uncertainty on that front. “I think there’s a lot of political will to raise these rates,” he said, so investors should consider talking to an advisor to figure out what long-term wisdom is best. Practicality may suit them.
One piece of the puzzle should include government bonds, which have been “heavily affected” by the Fed’s rate hikes to curb inflation, Lee said. Now, with rates falling, it may be worth giving these investments — often considered safe assets — a new look.
With rate cuts raising yields on long-dated bonds, those who invest “will probably have more duration risk, which will give you more appreciation when rates come down,” Lee said.