Start 2025 Right: A Guide to Setting Financial Goals for the Coming Year
January 3, 2025
As the year comes to a close and a new one begins, many of us feel motivated to set resolutions to achieve: wellness goals to live healthier lives, professional goals to advance our careers, or personal goals to better ourselves. To help us lead more fulfilling lives, it’s important to remember to set financial goals as well.
One of the best ways to position yourself for a successful year ahead is to set clear, intentional financial goals; without a roadmap, it’s easy to overlook your priorities and make reactive, rather than proactive, money decisions.
Intentional financial goal-setting allows you to align your money with what matters most. By creating a financial plan that sets you up for success, you can move through 2025 with confidence and purpose.
1. Reflect on 2024 to Plan for 2025
Before setting financial goals for 2025, look back at the previous year and see where you stand financially. Looking back will help you move forward—by reflecting on your progress, you can understand what’s working, what’s not, and what you can build on in the year ahead.
- Evaluate Your Financial Habits: Take an honest look at your spending, saving, and investing habits. Did you stick to your budget? Were there times when you spent more than you made? Reviewing your financial habits can help you spot patterns and identify areas that need improvement.
- Identify Successes and Challenges: Recognize your financial successes, whether paying off debt, following a savings plan, or increasing your investments. But also acknowledge any setbacks, like unexpected expenses or missed savings goals. Understanding any challenges you may have had allows you to better address them as you plan for the new year.
Reflection isn’t about perfection; it’s about learning and using what you’ve learned to refine your financial priorities for the coming year. By looking back, you can build a strong foundation for 2025 and help ensure your goals are realistic and aligned with your financial situation.
2. Set Your Financial Goals for 2025
The key to effective goal-setting is making your goals SMART—Specific, Measurable, Achievable, Relevant, and Time-bound:
- Specific: Your goal should be well-defined and clear. A specific goal eliminates ambiguity and gives you direction.
- Measurable: You should have a way to track progress. A measurable goal includes metrics or criteria to keep you motivated and help you know when you’ve achieved your goal.
- Achievable: Set realistic goals based on your current circumstances. While it’s great to aim high, your goals should be within reach. Setting achievable goals helps build confidence as you see progress.
- Relevant: Your goal should align with your overall priorities and financial situation.
- Time-bound: Set a deadline to achieve your goal.
Setting SMART goals helps position you for success, as your resolutions aren’t just wishes but actionable plans.
Create a Budget
A well-planned budget is the cornerstone of financial goal-setting. Start by assessing your income and fixed expenses, then allocate funds for discretionary spending (while ensuring you leave room for savings and investments). By creating and sticking to a budget, you can help ensure steady progress toward achieving your goals for 2025.
Build on Your Emergency Fund
If you don’t already have emergency savings, make this a top priority. The common recommendation is three to six months’ worth of expenses. If you already have an emergency fund, consider increasing it to account for inflation or unexpected life changes.
Pay Down Debt
Reducing high-interest debt can improve your financial health and increase your financial freedom. With less debt, you can free up cash flow and put more towards saving, investing, and reaching your financial goals. Make sure you create a clear repayment timeline to keep you on track and stay motivated.
Contribute to Retirement Accounts
Fund your retirement: contributing to your 401(k) or IRA not only helps you build a nest egg for the future but can also offer immediate tax advantages. Aim to contribute at least enough to receive any employer match, since this is essentially free money that accelerates your savings. Consider increasing your contributions; incremental increases (even a small percentage annually) can have a significant impact over time.
3. Create a Blueprint for Success
Creating a solid financial plan is all about building a roadmap that guides you toward your financial goals while keeping you motivated along the way. Here’s how to set yourself up for success as you work toward your financial aspirations:
- Break Goals into Manageable Steps: Large financial goals can feel overwhelming, so break them into smaller, achievable milestones. Smaller financial targets can make progress feel more attainable. Don’t forget to celebrate your wins!
- Automate Savings and Contributions: Setting up automatic transfers to your savings, investment, and retirement accounts is one of the most effective ways to stick to a financial plan. By paying yourself first, you put your goals first, before other spending.
- Build Flexibility into Your Plan: Life rarely goes the way you plan, so it’s important to leave room for adjustments. Regularly review your progress, and be prepared to adapt your timeline and priorities as needed.
- Focus on High-Impact Goals: Not all financial goals carry equal weight, so focus on the goals that will have the most significant impact on your financial health (like paying off debt or saving for retirement), provide long-term stability, and move you closer to achieving other financial milestones.
Why You Shouldn’t Go It Alone
Setting intentional financial goals can help you take control of your financial future and ensure it’s fulfilling and secure. You don’t have to go it alone, though: partnering with a financial advisor can make a difference in achieving your goals, as their experience and knowledge can help you create a custom plan aligned with your long-term vision.
At
Five Pine Wealth Management, we work with you to develop a personalized plan that reflects your specific financial situation and priorities. As fiduciary financial advisors, we have your best interest in mind as we help you make informed decisions in your financial and retirement planning. We’ll always be in your corner, helping to keep you on track for achieving your goals in the new year and beyond.
To see how we can help you in your financial planning, please give us a call at: 877.333.1015 or send us an
email today.
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Key Takeaways A portfolio designed for accumulation may carry too much risk, or the wrong kind of risk, once you stop contributing. When two spouses are at different financial life stages, their investment strategies should reflect that difference. A Roth conversion strategy during the years before required minimum distributions begin can meaningfully reduce your long-term tax burden. Rob spent 30 years building a picture-perfect financial foundation for his retirement. He maxed out his 401(k) and stayed disciplined through market downturns. By the time he retired from a long career in plant management and HR, he had a nest egg most people only dream about. But then retirement arrived, and with it came a new kind of anxiety. Rob spent all those years learning how to build wealth, but never how to draw it down. The accumulation phase was clear, but the decumulation phase is far more complex and far more personal. Rob had hired a financial advisor when he retired, hoping for guidance through that transition. Instead, he got portfolio management and investment decisions without the broader planning context he needed. That relationship didn’t last a year. And that’s when he and his wife Christie, came to Five Pine. The Numbers Behind the Plan: When They Started Today Rob’s age 57 63 Investable assets $1.1 million $2.5 million Net worth — $3.5 million Primary challenge No decumulation plan, Comprehensive plan in place heavy pre-tax exposure Key strategies Portfolio redesign, Ongoing tax planning, Roth conversion planning rebalancing When Saving Well Isn't Enough When we first met Rob and Christie, a few things stood out right away. Rob was recently retired with $1.1 million in investable assets (the vast majority of it in pre-tax retirement accounts). Christie, about ten years younger than Rob, was still working and earning a high income as a part-owner of a small business. They were a dual-financial-life household: one person winding down, one still in full accumulation mode. Rob’s most pressing concern was straightforward to state but harder to solve: how much could he spend without putting their retirement at risk? He wanted to travel, renovate the house, and buy a new vehicle without second-guessing himself. But after those decades of saving, spending felt foreign, even a little reckless. He had seriously considered going back to work, not because he needed to, but because he felt he couldn’t trust the numbers. Underneath that, a long-term tax problem was simmering. With most of their savings in pre-tax accounts, Rob and Christie were looking at significant required minimum distributions (RMDs) starting at age 73. And Christie, likely to outlive Rob by a meaningful margin, would eventually face those distributions as a single filer at higher tax rates. They weren’t in trouble, but without a plan, they were heading toward unnecessary complexity and tax liability. A Plan Built for Retirement, Not for Accumulation We started with the full financial picture. Before we touched the portfolio, we built a comprehensive financial plan and stress-tested it against different market scenarios, spending levels, and timelines. Once Rob saw the projections running out over a 30-year horizon, his hesitation about retirement began to lift. The plan gave him the number he needed and, more importantly, the confidence to trust it. From there, we redesigned the portfolio to match Rob’s phase of life. He had come from a Dave Ramsey background and had always preferred an all-equity approach: aggressive, growth-focused, and straightforward. That served him well during the accumulation years, when he contributed every month and had decades to recover from downturns. But in retirement and drawing from the portfolio regularly, it introduced more risk than his situation warranted. We restructured his holdings to roughly 60% equities, 25% fixed income, and 15% in alternative investments, specifically private credit funds and private real estate. The alternatives were a meaningful addition. They could potentially carry lower price fluctuation than publicly-traded assets and have the ability to generate distributions, which may potentially help support spending needs without forcing untimely equity sales. Christie's accounts, meanwhile, stayed aggressive. She's still contributing through her employer plan, still has years of earning ahead of her, and has time to weather market swings. Finally, we put a Roth conversion strategy in place for the years ahead. Timed to begin when Christie retires, the strategy takes advantage of a window when their income will likely be lower, but before RMDs kick in and before Christie potentially files as a single filer at higher tax rates. Converting pre-tax dollars gradually reduces the accounts that will eventually be subject to mandatory distributions, potentially saving hundreds of thousands of dollars in taxes over time. From Hesitation to Confidence Rob came to us considering whether he needed to keep working. He left with a plan that showed him that he didn't. Once the plan was in place, Rob and Christie started making the most of their years together, international sailing trips, travel they had put off, and experiences they had earned. A health scare along the way reinforced what the plan had already made clear: the goal is to fund a life worth living while you're healthy enough to live it. On the investment side, market volatility became an opportunity rather than a threat. When markets dropped sharply during a period of economic uncertainty, we rebalanced, selling fixed income to buy equities at a discount. As markets recovered, those moves contributed meaningfully to their overall growth. Five years in, their investable assets have grown from $1.1 million to $2.5 million. Beyond that, Rob and Christie have referred five family members to Five Pine, a reflection of the trust that developed alongside their plan. In Christie's own words: "Ben and Jeremy are honest, approachable, and very professional. They take great pride in getting to know clients and listening to each individual's goals. Honestly, they are the best fiduciaries I have ever worked with, by far." Your Decumulation Strategy Starts Before You Retire Rob's story is more common than most people realize. Disciplined savers often arrive at retirement without a spending plan, a tax strategy, or a portfolio suited to this new phase of life. If you're within five to ten years of retirement (or already there), it's worth asking whether your current advisor is doing comprehensive planning, including tax planning for retirement, or simply managing your investments. Over the course of a long retirement, that distinction can determine whether or not you’re equipped to tackle retirement with confidence. We'd love to help you find your number. Email us at info@fivepinewealth.com or call 877.333.1015. Let's talk.* Frequently Asked Questions (FAQs) Q: When should I start building a decumulation strategy? A: Ideally, five to ten years before you plan to retire. That window gives you time to gradually reposition your portfolio, identify potential tax issues before they become expensive, and stress-test your spending assumptions while you still have income coming in. Q: What role does Social Security timing play in a decumulation plan? A: Claiming Social Security early locks in a permanently reduced benefit, while waiting until 70 can increase your monthly payout substantially. The right timing depends on your health, other income sources, and whether a spouse will eventually depend on your benefit as a survivor. Coordinating with your Roth conversion strategy is also worthwhile, since both affect your taxable income. Q: What happens to my decumulation plan if the market drops early in retirement? A: This is often called the sequence of returns risk. A significant market decline in the first few years of retirement can have a lasting impact on a portfolio, because you're withdrawing funds at lower values. A well-designed decumulation strategy accounts for this by maintaining a portion of the portfolio in less volatile assets, so you're not forced to sell equities at a discount to cover living expenses during a downturn. *Names have been changed to protect client privacy*
Key Takeaways Taking early withdrawals from your 457 while letting your IRA grow can help you build a more balanced retirement plan. First responders with LEOFF or PERSI pensions can use their 457 plan as a bridge between retirement and traditional retirement account access. Rolling your 457 into an IRA at retirement removes penalty-free access to funds before age 59½. Many first responders in Washington and Idaho can realistically retire early. Thanks to pensions like WA LEOFF Plan 2 or ID PERSI, disciplined savings, and a long career of service, retiring at 55 is common. If you've been putting money into a 457 deferred compensation plan, you may be sitting on a sizable balance by the time you retire. As retirement approaches, you may be wondering: “What do I do with my 457 deferred compensation plan?” Many people unintentionally make a costly mistake. They roll their entire 457 balance into an IRA the moment they retire, thinking it's the right move. It might seem logical to combine accounts and keep things simple by moving everything into one IRA. However, this move eliminates a key advantage of a 457 plan: you lose penalty-free access to your money before age 59½. Let’s look at how this works and how you can set up your retirement accounts to stay flexible in your early retirement years. Early Retirement at 55: The Income Gap Problem Whether you're covered by LEOFF Plan 2 or PERSI, retiring around age 55 is entirely realistic. LEOFF Plan 2 members can retire with a full benefit at age 53 (or as early as 50 with 20 years of service and a reduced benefit). Idaho PERSI first responders can retire as early as 50 under the Rule of 80. The years between ages 55 and 59½ are a unique financial period. Your pension might cover a portion of your income needs, but often not everything. Social Security usually starts much later, and if most of your retirement savings are in IRAs, taking out money early can trigger penalties. This is where your 457 plan can be especially helpful. Unlike most retirement accounts, 457 plans let you take out money without the 10% early withdrawal penalty once you separate from service. This rule gives you a helpful bridge between retiring and the time when traditional retirement accounts become easier to access. You lose this benefit if you move your money into an IRA too soon. If your pension doesn't cover all your needs and you rolled everything into an IRA, you might face penalties or be unable to access your money. This early-retirement gap is exactly what good 457 planning can help you avoid. 457 Plan Withdrawal Rules Once you separate from service, whether you quit, get laid off, or retire, you can start taking 457 withdrawals from your 457 plan without a 10% penalty, no matter your age. Whether you're 55, 45, or even 35, the penalty doesn't apply. If you move money from your 401(k) or another account into your 457 and then withdraw it, that money loses the 457's penalty-free status. It’s now treated like IRA money and is subject to the 10% early withdrawal penalty. Only the original 457 money stays penalty-free. You will still owe ordinary income taxes on every withdrawal from a traditional 457, just like an IRA. The key difference is that you don’t have to pay the extra 10% penalty, which can save you thousands of dollars. Should I Roll My 457 Into an IRA? Now that you know the withdrawal rules, you might be asking yourself, “Should I roll my 457 into an IRA?” This is an important question, and the answer is: it depends. Usually, moving everything at once isn’t the best idea. Many people roll their entire 457 into an IRA at retirement because it’s often suggested as a way to “consolidate” and “simplify.” While there are legitimate reasons to roll some money into an IRA, doing it all at once at age 55 means you lose your penalty-free income bridge. A few of the advantages of rolling some money into an IRA are: More investment options Estate planning flexibility Roth conversion strategies A better strategy for most first responders retiring around 55 is to split your 457 balance into two parts, or “buckets,” each with its own role in your retirement plan: Bucket 1: Use your 457 account for early-retirement cash flow. This is the money you'll live on from age 55 to 59½ (or whenever your pension plus other income is sufficient). The 457 allows penalty-free withdrawals at any time, so you control both the amount and timing of distributions. This bucket bridges the gap until your other income starts coming in. Bucket 2: Roll into an IRA for long-term growth. Once you've determined how much you need for the early years, the rest can be rolled into a traditional IRA. The IRA bucket offers more investment choices and greater flexibility for estate planning or Roth conversion. Here’s an example: Jason is a firefighter retiring at 55 from Washington with $300,000 in his 457. His LEOFF Plan 2 pension covers most of his expenses but leaves a $1,500 per month gap. Instead of rolling everything to an IRA, he keeps $90,000 in the 457, which covers about five years of that gap at $1,500/month, and rolls the remaining $210,000 into a traditional IRA. The $90,000 stays accessible, penalty-free, and the $210,000 continues to grow. By the time he turns 59½, the IRA restrictions are gone, and he hasn't paid any unnecessary penalties. Deferred Compensation Rollover: What You Need to Know If you decide to roll part of your 457 into an IRA, the process is simple. You can move your 457 into another retirement account, like a traditional IRA, Roth IRA, 401(k), 403(b), or another 457 plan. There are a few things to keep in mind: Direct rollover is the best option. Have your 457 plan send the money straight to your IRA provider. If you get the check yourself, you have 60 days to put it into your IRA, and your employer will withhold 20% for taxes. If you miss the 60-day deadline, it will be treated as a taxable withdrawal. Roth conversions are possible, but watch the tax hit. You can convert your 457 to a Roth IRA, but be careful about taxes. If you do this soon after retiring, your income might be lower, which could make it a good time for a Roth conversion. Just make sure not to convert everything at once without checking the tax impact. Putting IRA money back into your 457 is usually not a good idea. Once IRA or other retirement plan money goes into your 457, it loses the penalty-free withdrawal benefit. Only do this if you have a very specific reason. Washington's DCP and Idaho's PERSI Choice 401(k) have their own rules. Washington state's Deferred Compensation Program (DCP) is administered by the Department of Retirement Systems (DRS). Idaho first responders may have the PERSI Choice 401(k) as well as other 457 plans. Be sure you know which accounts you're dealing with before starting any rollovers. Here are two helpful resources: Washington DRS (DCP information) Idaho PERSI A Note on Taxes and Required Minimum Distributions Even if you don’t pay a penalty, you still need to think about taxes. Every dollar you take from a traditional 457 counts as regular income for that year. If you're not careful with how much you withdraw, you could end up in a higher tax bracket, especially if your pension income is already high. This is one reason the bucket approach is helpful: you can control how much you withdraw from your 457 each year and keep your taxable income in a comfortable range. It’s also important to know that required minimum distributions from traditional 457 accounts begin at age 73 or 75, depending on when you were born. Beginning in 2024, Roth 457(b) accounts in governmental plans became exempt from RMDs under the SECURE 2.0 Act. This is another reason to think about whether Roth contributions or conversions are right for you. Talk With Us Before Rolling Your 457 The 457 plan is a powerful tool, and rolling it into an IRA without careful thought means losing the feature that makes it so valuable for retirees. At Five Pine Wealth Management, we help many first responders and public employees in Washington and Idaho. We know the ins and outs of WA LEOFF Plan 2, Idaho PERSI, deferred compensation plans, and the unique challenges of retiring earlier than most people. If you're within 10 years of retirement, or if you're already retired and want to make sure your money is set up the right way, we'd be happy to help. Call us at 877.333.1015 or email info@fivepinewealth.com. Before making a decision about your 457 rollover, let’s make sure your retirement accounts are working together as they should be. Frequently Asked Questions (FAQs) Q: Does a 457 rollover to an IRA count as a taxable event? A: A direct rollover from a traditional 457 to a traditional IRA is not taxable. Q: Can I take money out of my 457 while I'm still working? A: Generally, no. 457 plans don't allow withdrawals while you're still employed, except for very limited exceptions (such as an unforeseeable emergency). The penalty-free access kicks in once you separate from service. Q: What happens to my 457 if I roll it into an IRA and then need money before age 59½? A: You lose the 457's penalty-free protection. If you roll 457 funds into a traditional IRA, you lose the flexibility of penalty-free early withdrawals and become subject to a 10% early withdrawal penalty
