Unless you’re fresh out of school, the world you inhabit has changed dramatically from the one in which you began your career. Some time in this millennium or the last you set out on a career, had a family (or not), bought braces, houses, appliances, cars (or not), and signed up for retirement savings plans (or not).
When you retire, you expect to draw on portfolios and pensions based on plans and actions over several decades. How’s that going?
My guess is that even if you’re a planner and an executer, there is a lot you didn’t foresee, like the pandemic. How do we prepare our finances for a post-pandemic world?
1. Review your financial goals. Life looks different on this side of COVID-19. Making it to the top of your field may look less alluring now than learning how to strum a guitar or help those who have lost family members or livelihoods.
On the other hand, finding a market for your hand-strung beaded bracelets may now take a back seat to combing the plump want-ads for a job that can help you achieve a more comfortable retirement. Sit with yourself or your partner to think about your goals and values. Assess whether your spending aligns with these.
2. Edit your budget. Both your income and your expenses may have changed dramatically since early 2020. You many need to determine a new normal.
• Income: Many boomers retired early in the pandemic; other would-be workers are still strained by child-care issues. Today’s job market is a job seeker’s dream, which should signal rising wages.
• Medical expenses: The pandemic has further strained our healthcare system. However these huge costs shake out, we will be paying for years to come in higher premiums. Take care of your health by getting vaccinated and purchasing the most comprehensive medical insurance you can afford.
• Travel expenses: You likely saved money on your travel budget; nevertheless, prepare for higher prices when you start traveling again. Inflation was 1.25% in 2020 but is expected to be 2.4% in 2021. The travel industry will try to recoup lost revenue, and costs will be higher with Covid protections.
• If you need to revise spending downward after projecting out your income and spending, build in some flexibility. Whether your finances can handle an occasional weekend “off the budget” or a celebratory dinner per month, we all need a bit of room for fun.
3. Adjust what you spend on. Spend creatively: cooking together versus a night on the town. Choose a gift of time instead of money.
4. Adjust how you pay for things. If your savings are not what you’d like, make choices that allow you to better connect your spending with your income. ApplePay and other electronic systems are outrageously easy to use. You may not even notice you’re spending, which isn’t a good thing.
“Spending with cash, as opposed to a credit card, actually has a positive psychological impact,” says Lauren Anastasio, CFP and senior financial planner at SoFi. “Studies have shown that using cash actually reduces the amount of money someone will spend on an expense because of its more tangible nature.”
5. Rebuild your savings with a solid emergency fund. ‘The personal savings rate, which measures the percentage of our disposable income we save, was consistently higher during the pandemic, reaching 33.7% in April 2020 and 27.7% in March 2021. Translate your savings into an emergency cushion. Then push the rest to your retirement account.
It’s true that the best time to plant a tree is 20 years ago. But the next best time to plant a tree or start saving is now!
— Karen Telleen-Lawton serves seniors and pre-seniors as the principal of Decisive Path Fee-Only Financial Advisory in Santa Barbara. You can reach her with your financial planning questions at [email protected]. Click here to read previous columns. The opinions expressed are her own.