7 Things Seniors Should Do Before the Year Ends

Introduction: Taking Control of Your Finances in Retirement

As the year winds down, the holiday season isn’t the only thing that deserves your attention. For seniors living on a fixed income, the end of the year is a critical time for financial housekeeping. It’s a unique opportunity to review your budget, optimize your taxes, and make smart decisions that will set you up for a more secure and prosperous new year. This isn’t about complex Wall Street strategies; it’s about practical, powerful steps you can take right now to protect your assets and make your money work harder for you.

Effective end-of-year planning goes beyond just balancing a checkbook. It involves taking a proactive look at your retirement accounts, healthcare coverage, and tax situation. By addressing a few key areas before December 31st, you can avoid costly penalties, lower your tax bill, and ensure your financial plan remains aligned with your life goals. This guide will walk you through seven essential tasks to complete before the ball drops, providing clear explanations and actionable advice to empower your retirement prep.

The 7 Essential End-of-Year Financial Tasks for Seniors

Think of the next few weeks as your financial power hour. Completing these seven tasks can have a significant impact on your financial well-being. Let’s break them down one by one.

1. Take Your Required Minimum Distribution (RMD)

This is arguably the most important deadline for many retirees. A Required Minimum Distribution, or RMD, is the minimum amount you must withdraw annually from most retirement accounts once you reach a certain age. This includes traditional IRAs, SEP IRAs, SIMPLE IRAs, and 401(k)s. As of 2023, the age to start taking RMDs is 73.

Why is this so important? The penalty for failing to take your full RMD is steep. In the past, it was a staggering 50% of the amount you failed to withdraw. The SECURE 2.0 Act reduced this penalty to 25%, and it can be further reduced to 10% if you correct the mistake in a timely manner. Still, it’s a completely avoidable expense. Your RMD is calculated based on your account balance at the end of the previous year and a life expectancy factor provided by the IRS. Your account custodian (the brokerage firm where your IRA is held) usually calculates this for you and will often notify you of the amount.

Example: If your traditional IRA balance was $300,000 on December 31 of last year and your IRS life expectancy factor is 25.6, your RMD for this year would be $11,718.75 ($300,000 / 25.6). You must withdraw at least this amount before the end of this year.

2. Optimize Your Tax Situation

The end of the year is the perfect time to make moves that can lower your taxable income. For seniors, this often involves more than just standard deductions. Here are a few key tax tips to consider:

Tax-Loss Harvesting: If you have investments in a taxable brokerage account (not an IRA or 401(k)), you can sell investments that have lost value. These losses can be used to offset investment gains you realized during the year. If your losses exceed your gains, you can use up to $3,000 of the excess loss to offset your ordinary income, which can be a significant tax saver.

Qualified Charitable Distributions (QCDs): If you are 70 ½ or older, you can donate up to $100,000 directly from your IRA to a qualified charity. This is a powerful tool. A QCD counts toward your RMD for the year (if you have one), but the distributed amount is excluded from your taxable income. This can be more beneficial than donating cash and taking a standard charitable deduction, as it lowers your adjusted gross income (AGI), which can in turn reduce taxes on your Social Security benefits and lower your Medicare premiums.

Review Your Withholding: A big, unexpected tax bill in April is a nightmare on a fixed income. Look at the income you’ve received this year from pensions, Social Security, and retirement account withdrawals. If you think you might owe more than you’ve had withheld, you can ask your pension provider or IRA custodian to withhold more from your final payments of the year, or you can make an estimated tax payment to the IRS.

3. Review Your Medicare and Health Insurance Plans

Healthcare is one of the biggest expenses in retirement, so ensuring you have the right coverage is crucial. The Medicare Annual Enrollment Period runs from October 15 to December 7. This is your chance to switch between Original Medicare and a Medicare Advantage Plan, change your Medicare Advantage plan, or adjust your Medicare Part D (prescription drug) coverage.

Insurance companies change their plans every year. Your doctor might leave your network, a prescription drug you take could be moved to a more expensive tier, or a new plan might be available in your area that offers better benefits for a lower cost. Don’t assume the plan that was right for you last year is still the best fit. Use the official plan finder tool on the Medicare website to compare your options. Making a change before the deadline can save you thousands of dollars in the year ahead.

4. Rebalance Your Investment Portfolio

Over the year, the financial markets fluctuate. Some of your investments will have done better than others, which can throw your original asset allocation out of balance. For example, if you aimed for a portfolio of 60% stocks and 40% bonds, a strong year for the stock market might push your allocation to 68% stocks and 32% bonds. This means you are taking on more risk than you originally intended.

End-of-year planning is an ideal time to rebalance. This simply means selling some of the assets that have grown in value (stocks, in this example) and using the proceeds to buy more of the assets that have underperformed (bonds). This disciplined process forces you to sell high and buy low, and it ensures your portfolio’s risk level stays aligned with your comfort zone and financial goals. For retirees, managing risk and preserving capital is just as important as generating growth.

5. Update Beneficiary Designations

This is a simple but critically important task that is often overlooked. Your beneficiary designations on accounts like IRAs, 401(k)s, and life insurance policies override your will. If your will says your estate should be split between your three children, but your IRA beneficiary form only lists your oldest child, that IRA will go entirely to your oldest child upon your death.

Life events like marriage, divorce, death of a spouse, or the birth of grandchildren are all reasons to review your beneficiaries. The end of the year is a perfect reminder to log into your account portals or call your plan administrators to confirm that the people listed are still the ones you want to inherit those assets. Incorrect or outdated beneficiaries can lead to family disputes and unintended consequences, undoing years of careful financial and estate planning.

6. Evaluate Your Annual Budget and Spending

You can’t plan for the future without understanding the past. Take some time before year’s end to look back at your spending over the last 11 months. Use bank statements, credit card bills, and receipts to get a clear picture of where your money went. Tally up your expenses in major categories like housing, food, healthcare, transportation, and entertainment.

This exercise isn’t about judging your past choices; it’s about gathering information to make better ones. Were there any surprise expenses you need to plan for next year? Did you overspend in one area and underspend in another? Understanding your actual cash flow is the foundation of a successful retirement budget. This review will help you create a realistic spending plan for the new year, ensuring your income can support your lifestyle without depleting your savings too quickly.

7. Use Up Flexible Spending Account (FSA) Funds

If you or your spouse are still working and have a Flexible Spending Account (FSA) for healthcare expenses, now is the time to check your balance. Most FSAs have a “use it or lose it” rule, meaning any money left in the account at the end of the year is forfeited to your employer. Some plans offer a short grace period (until March 15 of the next year) or allow you to carry over a small amount (around $600), but you must check your specific plan’s rules.

Don’t let that pre-tax money go to waste. You can use FSA funds for a wide range of medical expenses, including prescription glasses, dental work, hearing aids, co-pays, and even over-the-counter medical supplies like first-aid kits and blood pressure monitors. Schedule that extra dental cleaning or stock up on eligible health items before the deadline.

Financial Red Flags and Scams to Watch Out For

Unfortunately, the end of the year is also a prime time for financial scams targeting seniors. Scammers know you might be focused on holiday preparations, charitable giving, and tax matters, and they use this as an opportunity to strike. Here are three common scams to be wary of.

1. Fake Charity Scams: During the season of giving, criminals create fake charities or impersonate real ones to steal your money. Be suspicious of any charity that uses high-pressure tactics, refuses to provide detailed information about how donations are used, or thanks you for a pledge you don’t remember making. Never donate with cash, gift cards, or wire transfers. Instead of clicking on a link in an email, go directly to the organization’s website to donate. You can verify a charity’s legitimacy through watchdog sites or the IRS’s own search tool.
2. The Grandparent Scam: This cruel scam plays on your emotions. A scammer will call you pretending to be your grandchild who is in trouble—often claiming they’ve been arrested or in an accident in another country and need money wired immediately. They beg you not to tell their parents. The urgency and secrecy are red flags. If you get a call like this, hang up and call your grandchild or another family member directly to verify the story. Never wire money or provide gift card numbers based on a frantic phone call.
3. IRS Impersonation Scams: As you begin thinking about taxes, be aware of scammers pretending to be from the IRS. They might call, email, or text you, claiming you owe back taxes and will be arrested if you don’t pay immediately using a gift card or wire transfer. The real IRS will never initiate contact this way. Their first contact is almost always through physical mail. Furthermore, the IRS does not demand immediate payment over the phone or threaten you with arrest by local police.

Your End-of-Year Financial Checklist

Feeling overwhelmed? Don’t be. Here is a simple summary of the key actions to take before the year is over. Use this as your guide for a final financial check-in.

First, log into your retirement accounts to confirm you have taken your full Required Minimum Distribution (RMD) if you are age 73 or older. Contact your plan custodian if you are unsure of the amount. Second, review your investment portfolio for opportunities to harvest tax losses or make tax-advantaged charitable donations through a QCD. Third, double-check that your Medicare plan for next year is still the best fit for your health needs and prescriptions before the December 7 deadline. Fourth, take an honest look at your spending for the past year to create a realistic budget for the year ahead. Fifth, rebalance your investment portfolio to align it with your target risk level. Sixth, pull up the beneficiary forms for all your retirement and life insurance accounts to ensure they are current. Finally, if you have an FSA, check your balance and spend any remaining funds on eligible expenses to avoid forfeiture.

Tackling these items one by one will put you in a position of strength and clarity as you enter the new year.

For official information on Social Security and Medicare, visit SSA.gov and Medicare.gov. Federal tax information is at the IRS.

To protect yourself from scams and for consumer information, consult the Consumer Financial Protection Bureau (CFPB) and the FTC.

Disclaimer: This article is for informational purposes and is not a substitute for professional financial or tax advice. Consult with a certified financial planner or tax professional for guidance on your specific situation.

Frequently Asked Questions

What happens if I miss the December 31 deadline for my RMD?
If you fail to withdraw the full RMD amount, the IRS can impose a penalty of 25% on the amount you failed to withdraw. However, if you realize the mistake and withdraw the funds quickly, and then file Form 5329 with the IRS explaining the reason for the shortfall, the IRS may agree to reduce the penalty to 10% or even waive it entirely if you can show reasonable cause for the error.

How much of my Social Security benefit is taxable?
It depends on your “combined income,” which is your adjusted gross income (AGI) plus non-taxable interest plus one-half of your Social Security benefits. For an individual, if your combined income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits. If it’s over $34,000, up to 85% of your benefits may be taxable. For married couples filing jointly, up to 50% is taxable for income between $32,000 and $44,000, and up to 85% is taxable for income above $44,000.

Do I still need to rebalance my portfolio if I’m fully retired and focused on income?
Yes, rebalancing is still important. Even a conservative portfolio designed for income can become unbalanced. For example, if interest rates fall, the value of your bonds may increase relative to your stocks, making your portfolio more conservative than intended and potentially reducing future growth needed to combat inflation. Rebalancing helps you maintain the right mix of assets to manage risk while still meeting your long-term income and growth objectives.

Can I use a Qualified Charitable Distribution (QCD) to donate to any organization I want?
No, a QCD must be made to a 501(c)(3) organization that is eligible to receive tax-deductible contributions. It cannot be made to private foundations or donor-advised funds. Your IRA custodian can help you verify if a charity is eligible, or you can use the IRS’s Tax Exempt Organization Search tool on their website to check an organization’s status.

How can I easily track my spending for my end-of-year budget review?
While you can use pen and paper, many find it easier to use free budgeting apps or software that can link to your bank and credit card accounts. These tools automatically categorize your transactions, making it simple to see exactly where your money is going. Alternatively, reviewing your monthly bank and credit card statements and tallying up the expenses by category in a simple spreadsheet is also a very effective method.

For expert guidance on senior health and finance, visit National Institutes of Health (NIH), Centers for Medicare & Medicaid Services (CMS) and Social Security Administration (SSA).