Creating a financial plan that you are committed to can be a way to help gain peace of mind in your finances while you’re still living, and for your loved ones after you’re gone. It can take time and effort to organize and prepare a financial plan that meets your needs.
How often should you revise your plan? The easy answer is this: whenever there’s a major change in your life circumstances — a birth or a death, a promotion or the loss of a job, when substantial, unexpected bills pop up, during stock or real estate market swings that may impact your portfolio. Even without those major events, an annual review is a good idea. It’s important to check your status and progress toward your long-term goals. Wide divergences from your plan may mean you need to save more, devote more of your income to other needs or goals, or change your asset allocation strategy.
We prioritize being available to our clients for questions or concerns any time of the year they pop up. One of the most important services we offer is an annual review for clients. They can be as surface-level or intensive as you need. We’re here to help.
Retirement is no longer viewed as a time to slow down, but is now considered a new beginning in life. That means your current living expenses may have very little to do with your retirement expenses. You need to give serious thought to the type of retirement you want—visualize what retirement will be like. To help you estimate retirement expenses, consider these questions:
When do you want to retire? Will you realistically have the resources to retire at that age?
Do you plan to stay in your current home, trade down to a smaller one, or move to a different city? If you plan to move, is the cost of living there more or less expensive than your present city?
Will your mortgage be paid off by retirement? What about other debts?
Will you continue to work after retirement? If so, will you work part- or full-time? Where will you work and how much can you expect to earn?
Do you have any hobbies or interests that can be turned into paying jobs? Are you planning to start a business after retirement?
How will you spend your free time? What hobbies will you pursue? How much and where will you travel? How much will all these activities cost?
How will you pay for medical costs? Will your employer provide health insurance or will you need to purchase insurance to supplement Medicare coverage?
Do you have any medical conditions that are likely to impact your quality of life in retirement? What would you do if you became physically disabled? Would your spouse take care of you, would you move in with your children, or would you go to a nursing home? How will you provide for long-term-care costs?
How much of your income will be provided by personal investments including 401(k) investments? Are you confident you can invest so those investments will last your entire retirement?
What would happen financially if your spouse dies? If you die, would your spouse be able to support himself/herself financially?
Answering these questions should give you a clearer picture of retirement. We’re here to help you transfer your goals and dreams into an actualized retirement plan.
Most of us change jobs at least twice before retiring, leaving a trail of retirement nest eggs behind us. Now that defined-contribution plans are much more prevalent than defined-benefit plans, we have more responsibility for financing our retirement. So it’s important to manage our retirement accounts actively. But how can you do that if your accounts aren’t even located in one place? Here are a couple of tips:
Organize Your Records
As long as you continue to hold your account in a former employer’s plan, you should receive statements. Keep them all in a file —or even better, enter them all in a spreadsheet, tracking the combined balances and amounts in each type of investment.
Consolidate Your Accounts
It’s much easier to manage your assets if they’re all in one place. Fill out the paperwork necessary for rolling them over into one account. That single consolidation account could be the plan you are currently contributing to if it permits rollover contributions. You can also open a rollover individual retirement account (IRA) and have the funds from your other accounts directly transferred there.
If You’ve Lost Track of Accounts
If you’ve lost track of one or more of your accounts with a former employer, contact your old employer and ask them to confirm that you participated in the plan and the steps you need to take to get a current statement of your account. Or find an old statement and look for a contact phone number or address. As long as there are assets in the account, the financial institution can probably still account for them.
Saving money sounds simple. You set aside a portion of what you earn on a regular basis and watch your money grow. As a result, you’re more prepared for emergencies, feel more financially stable, and are better able to achieve what you most want.
But in reality, saving is a little more complicated. Sometimes, our own minds work against us when it comes to setting aside some of the money we earn. A basic understanding of the psychology of saving can help you overcome roadblocks and achieve your goals.
Why It’s Hard to Save
What is one of the biggest obstacles most people face when saving? We tend to prefer the certainty and immediate gratification of short-term rewards over the potentially greater — yet perhaps more uncertain — benefits of longer-term rewards. One study found that most adults would prefer to have $50 today rather than $100 two years from now, for example.
Part of the difficulty with saving for long-term goals is that people may tend to think of their future selves as different or separate from their current selves. That disconnect can make it hard to prioritize saving for the future.
Researchers studying this issue looked at whether encouraging people to think of saving for retirement in terms of a social responsibility to their future self, rather than in terms of their basic self-interest, would lead them to save more. The study found that the former appeal led to higher savings rates. In a related vein, another group of researchers found that seeing pictures of their future selves encouraged people to save more.
In fact, there are a number of studies that suggest changing our mentality might allow us to set aside more money.
A recent study found that people who adopted a cyclical mindset to saving, where they focused on making saving routine in the short term, saved more than people who set more ambitious longer-term goals. Those with a traditional linear mindset saved about $140 over two weeks, while those with a cyclical mindset saved $223 over the same time period. Overall, the evidence seems to suggest that if we can change the way we think about the future — and our future selves — we may be able to boost our savings rates.
The Psychological Advantage of Saving
Once you commit to savings, there’s a good chance you’ll see a psychological boost from doing so. In 2013, a survey by Ally Bank found that 38% of people with a savings account reported being extremely happy, compared to only 29% of people who didn’t have a savings account.
That same survey found that 82% of people reported saving made them feel independent. Those feelings of success, well-being, and independence may in turn lead to even more saving. In fact, feeling powerful and having high self-esteem can lead people to save more, perhaps because increasing their net worth and financial stability helps people maintain their powerful feelings.
There might even be a formula for spending and saving that could lead to more happiness. Ryan Howell, a professor of psychology at San Francisco State University, found that happy people tended to demonstrate a particular pattern of spending and saving, earmarking 25% of their money for savings and investments, allocating 12% to charitable giving or gifts to others, and spending about 40% on life experiences they considered meaningful.
While our mental quirks might make saving difficult, being aware of the obstacles our mind creates can help us conquer them. And that, in turn, may lead to greater savings and increased happiness overall.
With the turning of the decade, many important changes for inherited IRAs have gone into effect. As of January 1, 2020, the SECURE Act (Setting Every Community Up for Retirement Act of 2019) has gone into effect.
This Congressionally approved bill is intended to: 1) Help reduce the costs associated with setting up retirement plans for small employers, 2) Increase access to lifetime income options (annuities) inside of retirement accounts, 3) Make significant changes to the Required Minimum Distribution (RMD) requirements of IRAs, and 4) Make changes to the IRA contribution restrictions allowing for continued contributions beyond age 70 1/2.
This new law has the potential, according to the Congressional Research Service, to increase tax revenue by $15.7 billion dollars just in Federal tax revenue, not to mention State tax revenues for Inheritance and Income taxes.
Because this is the largest retirement planning bill since the Pension Act of 2006, we will be utilizing our presentations and published content as ways to get as much information to you as possible to help you better understand how these changes can impact your accounts, your beneficiaries, and the retirement planning adjustments you may need to make.
Please consider joining us for our State of the Markets events in March where this will be addressed in detail. We will also reference some key points from the SECURE Act during our February and March Social Security presentations and in our Empowering Women Investors events.