2024 Personal Finance Recap for 403(b) Plan Participants
December 28, 2024
By Barbara O'Neill, CFP®, AFC®
403(b) plan participants do not make personal finance decisions in a vacuum. Rather, you are influenced by life experiences (e.g., marriage, birth of a child, and career changes), current events (e.g., stock market performance), government legislation (e.g., tax laws) and policies (e.g., interest rates), and macroeconomic factors such as inflation and supply and demand.
A review of recent financial events and trends is useful to understand factors that affect your personal finances and to inform future actions such as 403(b) plan contributions and asset allocation weights and the decision to buy a car or a home. For readers who are financial educators, an annual financial synopsis can also be used to incorporate current events into the classroom.
This post provides a 2024 recap of 20 personal finance topics and a preview of 2025 changes. It is based on an archived 90-minute webinar that I recently taught for military family service providers. Reference citations for the webinar are available online. This post concludes with a summary of several 2024 personal finance research studies, three “need to know” facts, and six take-away action steps.
2024 Trends and Events
Inflation — With several upticks along the way, the consumer price index (CPI), a measure of the rate of change in prices for a “basket” of goods and services, decreased from 3.1% in January to 2.7% in November. However, a decreased CPI does not mean actual prices (think food, housing, insurance, etc.) are coming down after four years of compounding effects. Many consumers are anchored to pre-COVID price points and confuse a lower CPI with lower prices, which would require a sustained decrease in price levels known as deflation.
Interest Rates — The Federal Reserve held the federal funds rate steady in a range between 5.25% to 5.5% from January to September in response to higher than expected inflation in Q1 and Q2 and jobs reports. This was followed by 0.5%, 0.25% and 0.25% rate cuts in September, November, and December respectively. Impacts were felt on credit card annual percentage rates (APRs), car loans, and yields on bank accounts and money market funds.
Credit — Credit card spending and delinquency rates have risen steadily since 2021 with the highest non-mortgage debt (e.g., credit cards, student loans, auto loans) interest payments on record this year. By May, the average credit card balance and APR were $6,218 and 21.5%, respectively, and APRs have remained over 20% since. A proposed $8 cap on late fees by the Consumer Financial Protection Bureau (CFPB) was halted by court action in May but some card issuers raised APRs and other fees in anticipation of the late fee cap.
College Funding and Student Loans — The 2024 college application season was stressful due to delays rolling out a revamped Free Application for Federal Student Aid (FAFSA) form and subsequent errors that required recalculations on certain students’ FAFSAs. The proposed $475 billion Saving on Valuable Education (SAVE) student loan forgiveness program paused by court action with borrowers placed in an indefinite interest-free forbearance until at least April 2025. Lawsuits were brought against SAVE because it is costly and was not approved by Congress.
Housing-Home Ownership — A March settlement by the National Association of Realtors (effective in August) allowed home buyers to negotiate fees with their own agents and sellers to not have to pay buyers’ agent fees. Also in 2024, home affordability fell to its lowest level since the 1980s with a 6% to 7% interest rate range and limited housing supply due to “rate lock” (i.e., current owners unwilling to sell and lose mortgage rates below 4%). Mortgage rates actually rose after Federal Reserve rate cuts because they are, instead, linked to 10-year Treasury yields. Some homebuyers sought affordability workarounds such as mortgage rate buydowns and assumable loans.
Housing-Renting — Asking rents were up 3.3% in September 2024 vs. September 2023 with a typical asking rent of $2,050, according to Zillow, which also reported that rent prices are 33.7% higher since before COVID and rising faster than wages. Contributing factors to high rent include: inflation, lack of inventory, barriers to homeownership, expired pandemic rent freezes, and more demand by people wanting to live alone.
Banking — Banks dealt with the National Public Data breach where 2.7 billion pieces of stolen personal data could be used to open fraudulent accounts and loans in victims’ names. Savers started to earn lower interest rates after the Federal Reserve rate cuts. Competitive top-yielding accounts will, however, continue to pay returns that exceed the CPI and what brick-and-mortar banks are paying (e.g., 4.5% vs. 0.01% or 450 times more!).
Saving — The U.S. personal savings rate (definition: saving as a percentage of disposable personal income) started the year at 5.5% in January and gradually trended downward reaching 4.4% in October. 2024 also saw widespread bank promotions for new deposits, high-yield callable certificates of deposit (CDs) called back, and a “CD tsunami” of maturing CDs purchased previously when interest rates were higher.
Investing-Stock — As a measure of strong market performance, the Dow Jones Industrial Average started the year at 37,715 and closed above 45,000 in early December before falling significantly thereafter. The S&P 500 and NASDAQ composite indices also saw fresh highs. Stock market rally drivers included the strength of the U.S. economy, AI companies like Nvidia, corporate earnings, easing inflation, Federal Reserve interest rate cuts, politics, and strong jobs reports.
Investing-Other Than Stock — Bitcoin soared to new highs in several spurts. The first was after the Securities and Exchange Commission approved the issuance of bitcoin exchange-traded funds in January and another was after the November election amid predictions of a “crypto-friendly” administration. The price of Bitcoin was $43,598 on January 1 and topped $100,000 on December 4. 2024 also saw a record stretch for inverted yield curves on bonds and 3.11% yields for I-bonds (from 11/1/24 to 4/30/25) vs. 9.62 % in 2022, prompting some savers to cash out.
Shopping and Spending — Some notable 2024 retail trends included AI-powered personalization, increased use of frictionless payments (e.g., Apple Pay and Google Pay), and “quiet luxury” (i.e., high quality products without flashy logos.) There was also record food inflation, with food consuming the biggest percentage of Americans’ disposable income since 1991. In response, consumers increased their purchases of store brand foods vs. name brands.
Vehicle Purchasing — A record 16.8% of car loan borrowers had a monthly payment of $1,000+ in 2024. While some new car prices decreased, buyers did not “feel” it with higher loan APRs and auto insurance rates. Nearly 1 in 3 drivers are behind on car loans, the share of “upside down” drivers increased, and repossessions climbed 23% (vs. 2023). Taken together, these statistics are an indicator of the financial stress that many car owners are under.
Insurance— Auto insurance costs are up 39% vs. 2019. Contributing factors include the cost of parts and labor (inflation), natural disaster losses, and poor post-COVID driving habits. Increased material and labor costs and natural disaster losses also caused homeowners insurance rates to rise significantly. In addition, 2024 reports noted that some insurers are using drones to collect data about the condition of their policyholders’ homes.
Income Taxes — The IRS reported the second highest tax refund in 10 years, averaging $3,145 in early March. Final SECURE Act regulations were also issued in 2024 with respect to required minimum distributions (RMDs). Non-spouse beneficiaries must take RMDs annually during a 10-year payout period if account owners died on or before their required beginning date (RBD) when RMDs must begin. 2020-2024 penalties for missed RMDs were waived. The IRS also launched the Direct File program in 2024 and processed over 140,000 tax returns.
Retirement Planning — A quarter of coverage required $1,730 of earnings in a 3-month period and maximum taxable earnings were $168,600. The Social Security Administration estimated its trust fund will be depleted in 2035, thereafter requiring a 17% benefit reduction. Starting in 2024, employers could offer a $1,000 interest-free loan from retirement plan savings for workers’ self-defined emergency needs. Older adults received a 3.2% Social Security cost-of-living-adjustment and the earnings limit was $21,240 under full retirement age.
Milestone Financial Anniversaries — 2024 was the 100th anniversary of the first mutual fund (Massachusetts Investors’ Trust) and the 50th anniversary of the Employee Retirement Income Security Act (ERISA), from which most 403(b) plans are exempt, and the Equal Credit Opportunity Act that prohibits discrimination in approvals for credit. It is also the 25th anniversary of the QQQ exchange-traded fund that provides broad exposure to tech company stocks.
Financial Phrases and Acronyms — Popular financial words or phrases, many from Tik Tok, included “loud budgeting” (public displays of money management practices), “cash stuffing” (an updated term for the envelope budgeting method), “spaving” (spending money to save money), “dupes” (lower-priced alternatives to name brands), “bulk sharing” (banding together with others to buy items in bulk), and “JOMO” (joy of missing out, the opposite of FOMO).
Miscellaneous Finance-Related Events — U.S. growth domestic product (GDP) growth was solid, but not spectacular, in 2024 and most recently 2.8% in the third quarter. Two concerning trends were record homelessness and a banner year for identity thieves with about 1.1 billion data record breaches in the first half of 2024 alone. Another notable statistic affecting household finances is the lowest U.S. fertility rate on record since the 1930s: 1.62 births per woman. The post-COVID “two Americas” dichotomy continued with affluent people spending freely and others feeling financially squeezed. Older adults, in particular, fueled the economy with Baby Boomers “the richest retiring generation” ever.
Government Agency Rules — The CFPB personal data rights rule was finalized in October and is scheduled to be implemented in 2026 and beyond. It requires financial institutions and credit card issuers to transfer data to another provider for free at a consumer’s request, making switching providers for better rates or services easier. The Department of Labor’s fiduciary rule, designed to require financial advisors to follow a high standard of client care when making recommendations, was halted by a federal judge. The Federal Trade Commission “Click to Cancel” rule, finalized in October to take effect six months later, will make it easier for consumers to end subscriptions.
Government Legislation — A major accomplishment that 403(b) plan participants who are financial educators are proud of is, as of year-end 2024, 26 states have passed laws requiring high school students to take a stand-alone course in financial education prior to graduation. California was the latest state to pass legislation, resulting in 64% of all U.S. high school students now guaranteed to take at least one semester of personal finance prior to graduation.
2025 Announced Changes
The 2025 maximum contribution for 403(b) plans will increase $500 to $23,500 and workers age 50+ can contribute an additional $7,500 for a total of $31,000. Maximum IRA contributions remain the same as 2024: $7,000 for all workers and $8,000 for those age 50+. Under the SECURE 2.0 Act, a new catch-up provision for qualified workplace plans is available if employers implement it. Workers age 60 to 63 can take advantage of a “super catch-up” contribution of $11,250 in 2025.
Other changes taxpayers can expect next year are annual inflation indexing for ranges of income in the current seven income tax brackets, the standard deduction, the estate tax exclusion, and more. To earn a quarter of coverage for Social Security benefits will require at least $1,810 of income in a three-month period. 403(b) plan participants who already receive Social Security can expect a 2.5% cost-of living adjustment (COLA).
2024 Research Studies
A well-publicized Northwestern Mutual study found that $1.46 million was “the number” people think they need to save to retire comfortably. This was much higher than $951,000 in 2020. While most responses were likely guestimates, the higher “number” reflects anxiety about recent inflation and health care costs.
A study by Healthview Services explored the accuracy of longevity estimates in retirement savings calculators using actuarial data and risk probabilities for health conditions. They found most retirees- even the healthiest- will not live to age 95, especially those who are diabetic or obese, and concluded that standard industry projections to age 95 should not be “one size fits all.” Health status should also be included in financial plans.
An academic study explored retirement glide paths (changes in asset allocation percentages) and found that increasing glide paths, where the percentage of stock increases over time, are often optimal to not run out of money. This is counter-intuitive to “conventional wisdom” where people generally invest more conservatively as they get older. The researchers noted that retirees with guaranteed income, especially with COLAs, might consider taking on more risk with a higher stock allocation in their portfolio if their risk tolerance level allows.
Three (More) Things
- It will take time for Federal Reserve interest rate cuts that began in 2024 to have a major impact on individuals and the economy (e.g., 60% of homeowners with mortgages already have rates below 4%).
- Taxes are “on sale” for one more year (2025). If the Tax Cuts and Jobs Act is not extended, income taxes revert to 2017 rules and marginal tax brackets will be higher.
- I-bond owners who are thinking of cashing out due to decreased yields (vs. 2022) forfeit three months of interest if they redeem their bonds within five years of purchase.
Six Smart Strategies
No. 1: Complete Paperwork Now — Consider increasing 403(b) plan contributions in 2025 with the additional $500 allowed for regular contributions and either the $7,500 or $11,250 extra catch up contribution for older workers.
No. 2: Rebalance Your Portfolio — Review your 403(b) plan asset allocation as well as your overall investment portfolio. With strong stock and bitcoin performance in 2024, asset class weightings may have shifted considerably, necessitating rebalancing.
No. 3: Accelerate Debt Repayment — Develop a plan to pay off what you owe as quickly as possible if you are one of the millions of Americans with an increasing debt-to-income ratio. The Utah State University calculator, PowerPay, is a great tool to use.
No. 4: Compare Savings Yields — Compare annual percentage yields (APYs) on savings accounts, money market funds, and CDs as interest rates start to decline. Companies like Bankrate and NerdWallet publish updated lists of APYs monthly.
No. 5: Claw Back Against Inflation — Accept the fact that many prices may never return to pre-COVID levels. With increased costs for many basic necessities, try to “find” offsetting discounts elsewhere (e.g., store brands, thrift shops, dollar stores, etc.).
No. 6: Learn More About 2024 Trends — Download the list of references used for this post and view my 2024 Personal Finance Year in Review webinar. The list includes links to source materials and is organized by the topic areas shown above.
In Summary
The end of the year is a good time to take stock of your personal finances and make plans for the year ahead. Make a list of 2024 trends that affected you personally and focus your efforts on addressing these areas.
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Dr. O'Neill is the owner/CEO of Money Talk: Financial Planning Seminars and Publications where she writes, speaks, and reviews content about personal finance. She is a Distinguished Professor Emeritus at Rutgers University and a long-time 403(b) plan participant.