Taking Groundhog Day Out of Retirement Planning

Agemy Financial Strategies

January 26, 2022

Is your retirement plan stuck in a time-loop? The better you plan for retirement, the more likely you’ll be to enjoy your senior years to the fullest. That’s why it’s imperative that you don’t repeat any of these glaring mistakes when it comes to your retirement outlook. 

If you wake up every morning thinking that you need to get your retirement plan updated, or worse, started, you might feel like Bill Murray in the classic movie “Groundhog Day.” Truth be told, a lot of days in 2021 felt like Groundhog Day: a never-ending time loop of new variants, working from home, eating at home, exercising at home, visiting with friends and family in small groups, etc. But did you know there’s a way to get out of an retirement plan time loop, and it won’t require you to go through endless mornings with a clock radio playing The Beatles’ “Tax Man” song?

A common mistake that people make when planning for retirement is that they focus on their present financial situation or the few years that lie ahead. They don’t look beyond the horizon of retirement. By making these mistakes they fall into the mindset of “I’ll get to it later” or creating a highly flawed plan.

Money is important, but time is of the essence. A lot of time has been lost due to the pandemic, and the need for getting back on track must be acknowledged. The sooner you can start your quest for retiring at your preferred age, the better. Here’s a couple tips on how to not fall victim to this mindset and how to constantly evaluate and update your retirement plan for years to come.

Having No Plan in Place

Too often there are retirees who don’t have their goals and needs laid out. The importance of having these goals and needs in place for when retirement approaches is crucial. Many people forget to update those goals and needs as they change. It’s the people who establish a good plan early on who have the most success.

You shouldn’t wait until your next life stage begins because there is always another life stage inviting you to postpone taking action until tomorrow (more on this below). If people wait to postpone saving and investing until their forties, they may have to save at double the annual rate of people who start investing in their twenties.

As a general rule of thumb, if you save 10–12% of your salary between the ages of 22 and 65, you will have roughly the same ability to cover retirement expenses as an individual who saves 25 percent between 40 and 65. Establishing good habits early pays off. Make a plan and stick to it.

The Imperfect Plan

The second kind of mistake happens when people have a plan but it’s flawed. You think you’re looking ahead but you’re not looking clearly or far enough. Here are the most common investment mistakes we see and the most important ones you should avoid:

  • Not investing properly: This can mean choosing the wrong asset allocation, keeping too much in cash, taking an improper amount of risk, or using expensive investment products.
  • Not planning for your own personal situation: Generally speaking, retired people spend about 20% less than when they were working. Since they no longer commute or entertain business colleagues. However, this can work the other way. Many retirees spend more in retirement than when they were working. They travel more, perhaps eat out more often, attend more cultural events, and take up new hobbies. Your plan should be customized to a realistic appraisal of your own lifestyle and likely future preferences.
  • Not having an estate plan: Putting an estate plan in place is essential and should happen long before retirement. Effective estate management enables you to manage your affairs during your lifetime and control the distribution of your wealth after death. An effective estate strategy ultimately will spell out your wishes and ensure that they’re carried out – even if you are unable to communicate.

To combat these imperfections in your plan, try the following:

  1. Know where you stand. Know your net worth, current income, expenses and savings patterns.
  2. Set concrete, time-bound goals. Periodically check in to make sure that you hit your goals. Some people do a monthly money date to review monthly spending and saving patterns.
  3. Use a retirement calculator to determine how much you need to save each year to reach your goal. Then, you should adjust your spending to make that happen. It may mean something small, like limiting meals out, or something big, like downsizing your home or relocating to a less expensive city.
  4. Put together a disciplined, low-cost investment strategy. If you don’t have the time or expertise to do this, you can always contact the financial advisors at agemy financial for help.
  5. Rebalance your investment portfolio at least annually. Our Investment Section of our website has some great tools that makes this step incredibly easy to evaluate where you stand relative to your goal.

Revsiting Your Retirement Plan with Agemy Financial Strategies 

There’s a tendency to see your retirement plan as a static document — a map that you follow throughout your working life leading you toward the finish line. Even if you presume your retirement plan is up to date, do you really know if that plan still works for you? Will it truly create a lifestyle that will stir your soul in the next chapter? You have to update it periodically to ensure that it’s still in alignment with your shifting goals, savings, and priorities. Here are six times you should review it and consider updates with your trusted Fiduciary at Agemy:

  • Annually: Ideally, you should look over your retirement plan at least once a year. You may not have to make any changes, but if you do, it’s easier to make these small adjustments once a year than it is to make larger adjustments as you near retirement and realize you don’t have enough savings.
  • After a major life event: Adding or losing a member of your family, experiencing a major health crisis, or buying a new home can affect how much you need to or are able to save. You might have to divert some of those funds toward new living expenses, requiring a whole new retirement plan.
  • If you’re about to retire: Before you exit the workforce for good, look over your plan again to make sure you’ve met your savings goals and that you’re comfortable with your withdrawal strategy.
  • If you’re turning fifty: Adults 50 and older are allowed to make catch-up contributions to their retirement accounts. These can be up to $25,000 to a 401(k) in 2019 and $7,000 to an IRA, compared with $19,000 and $6,000, respectively, for adults under 50. If you weren’t able to start saving for retirement as early as you’d hoped, you can make up for it now.
  • If you’re divorcing: When you end your marriage, you may find that your retirement savings take a serious hit. Typically, retirement funds saved during a marriage (including 401ks, pensions and social security) will be considered as part of the marital assets during divorce and subject to some type of division.
  • If you need to rebalance: Your retirement portfolio may be composed of various assets that have different rates of growth. It is a good idea to reevaluate your investments to make sure they are delivering the returns you expect or want. If they are not performing the way you would like, you could consider rebalancing your portfolio.

Do you fall into any of the above categories? If so, Agemy Financial Strategies is here for you every step of the way to ensure you create healthy retirement planning habits for years to come.

The Bottom Line

Everyone should have a retirement plan. Nobody wants to keep working into their golden years and nobody wants to struggle with financial hardship during that period of time in your life. The sooner you put a plan in place, the higher your chances of succeeding.

If your retirement plan is stuck in Groundhog Day, call our office at 800.725.7616 and make an appointment to meet with us by phone, video conferencing or in the offices in both Guilford, CT and Denver, CO. We can get your current plan updated, and get you out of the time loop. Eventually, Bill Murray got to tomorrow in “Groundhog Day, and the same can happen for your retirement years.

For more information on money management and retirement planning, talk to one of our financial advisors here today.

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Helping Adult Children Without Sabotaging Your Retirement

Agemy Financial Strategies

January 19, 2022

If you have an older child or children, there’s probably a question on your mind: How can I help them financially without going broke myself? As your adult children face financial challenges, your first thought may be to help them out. But this may not be the best plan of attack for setting them – or you – up for a secure financial future. 

A large portion of the millennial generation are finding it extremely tough to pay their rent and utility bills, afford groceries and car payments. This leaves parents wanting to help their struggling adult children make ends meet. For baby boomers in or near retirement, this is a big consideration as providing financial support to a family member can affect their own retirement plans. How can you help them without breaking your bank?

Tables Are Turning

As the elderly population grows and a new crop of young adults are financially struggling to attain a solid financial foothold in trying economic times, individuals ‘sandwiched’ between aging parents and adult children are adequately referred to as ‘the sandwich generation’. Over the past decade, studies on sandwich generation caregivers have become more popular, with the Pew Research Center and National Caregiving Alliance (NCA) performing regular surveys on caregiving habits. Several striking statistics show what makes this hard-working group unique:

  • More than one in 10 adults with a child under 18 also care for aging parents, according to a report on sandwich generation demographics by the Pew Research Center.
  • These caregivers spend about three hours a day on unpaid care. Nearly three quarters of them are employed full-time. That’s 21 hours a week of caregiving on top of a 40-hour job.
  • About 60% of sandwich generation caregivers are women. Male and female caregivers spend about the same amount of time a day caring for their aging parents, but mothers, on average, spend about 45 minutes more daily on child care, regardless of employment status.
  • Sandwich generation caregivers spend an average of 86 minutes less a day on paid work, and nearly half an hour less sleeping.

Some adults spend years as a sandwich generation caregiver, while others experience only a brief overlap. However, a new (and worrying) generational shift is happening: According to a recent study, 1 in 3 parents say they have delayed or are willing to delay their retirement to help pay for their children’s college education.

Modern Day Money Management 

Parents need to learn to set expectations and limits … for their children and for themselves.

While financially caring for an adult child, it’s important to work together to find a solution. Teach children the concept of earning, budgeting and investing as early as possible. This may be done by giving them an allowance when they are younger or encouraging them to get a job when they are older. Teach them the important financial lesson of appropriately managing the money they earn, and consider allowing them to make small-scale mistakes along the way to help them learn.

If debt is an ongoing issue, you may want to get professional advice on debt management and payment strategies. Having too much credit card debt is not a good way to start off life. It can ruin your credit and force you to pay higher interest rates on new debt, which can cripple you financially. Instilling good financial habits in your children can set a positive foundation for their relationship with money in adulthood — and lessen the odds of them having to rely on “The Bank of Mom and Dad” as they grow up.

Figure Out How Much Help You Can Realistically Afford to Offer

You may need to have a candid talk about what you can and can’t do. Communicate with your children how much financial support you plan to give them, if any, during their adulthood. It’s a simple task but you’d be surprised at how many parents don’t prioritize their own finances.

There are many ways to go about helping your adult child without opening your checkbook. For example, you could offer to watch your child’s kids to reduce her daycare costs, or pick them up from school so it’s one less thing for them to stress about. If you’re not in a position to help your adult child right now, have an open talk with them about it.

Be honest and explain that there are certain things you as a parent are willing to do for your kids and certain things you won’t. Don’t be afraid to say “no” if you’re not in a position to help your grown kids financially.

Consider a Loan Instead of a Gift

It’s important to specify whether your financial help to your adult child is a loan or a gift.

If you decide on a loan, begin by writing a contract with a set timeline. How long it will take to be paid back and how frequent the payments will be. The payments can start out small and later increase, as your adult children find their footing. They write you a check every month, no matter how small it is, so there is some feeling of gratitude and payback. You should never feel guilty about making your child pay you back. This is a great way to hold them accountable which in turn would help them become more accountable later in life.

Get Professional Help

Giving your adult children money may help them in the short-term but may not give them the skills and tools they need to be financially successful. If providing financial assistance to your adult children is a priority for you, incorporate it into your own financial planning process. Sit down with your children and help them create a budget they can stick to. Look at what money is coming in every month and what is going out. See what can be completely cut out or reduced in the expenses column. If they are outspending what they make, devise a budget that is going to work within their parameters.

You won’t be doing your kids any good, though, if you give them so much financial assistance that doing so depletes your savings. Through your years of financial experience, you may have crossed paths with many financial professionals. Whether they were an acquaintance or you hired them to help you with your finances, you may know plenty of financial professionals that could help your children move toward a successful financial future.

A financial advisor or Fiduciary can help you plan for your and your children’s future, and develop a secure financial plan which includes debt repayment, saving for college, and developing a retirement investment strategy. They help you see the big financial picture and assist you in making financial decisions that align with your goals. The sooner your children begin to work with a financial advisor or planner, the sooner they can start achieving their financial objectives.

Final Thoughts

As a parent, it’s natural to want to help your children financially, but be careful not to do it at the expense of securing your own retirement. Above all, make sure you discuss your spending needs both as a family and with your financial advisor. You’ve put time and effort into building a sustainable retirement plan. Don’t derail your hard work by giving away more than you can afford.

Do you need assistance managing your retirement expectations with your loved ones? The trusted Fiduciaries at Agemy Financial Strategies are here for you every step of the way.

For more information on money management and planning, talk to one of our financial advisors here today. 

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Prepare for a Financial Emergency with These 4 Tips

Agemy Financial Strategies

January 04, 2022

The thought of being hit with a major negative event that could affect your finances, such as a job loss, an illness, or a pandemic, can keep anyone awake at night. Emergencies won’t wait until you’re financially ready, so prepare for them now.

Noone likes or wants them – but life emergencies happen. In these stressful times, having access to personal financial, insurance, medical and other records is crucial for starting the recovery process quickly and efficiently.

The best time to prepare for a financial emergency is by preparing well in advance. If you wait until something unfortunate happens, you could find yourself scrambling to be able to find the needed funds. Here are 4 tips to help you prepare for a financial emergency.

Create A Budget

This is by far the most overlooked part in financial planning. While budgeting can be tedious, you’ll have a picture of your income and expenses and you’ll be better equipped to build a bigger savings cushion. To get started, you’ll need to track your expenses. Use an online budgeting tool or app that links to your bank, investment, credit card and other accounts and automatically tracks and categorizes expenses.

A simple budget breakdown follows the 50-20-30 rule: Up to 50% of your take-home pay is for essential expenses, such as rent or mortgage payments, utility bills, transportation to work, groceries, and insurance premiums; at least 20% goes toward saving for retirement, an emergency fund and other goals, and paying down debt; and up to 30% is designated for nonessentials, which may include restaurant meals and travel and entertainment spending.

Our free online financial calculators are a great first step. Financial calculators are a helpful tool to assist you in managing your money and estimating your loan payments. All you need is some information about your finances and these specialized online math machines will spit out the numbers or percents you need to manage your finances and make budgeting decisions. Try out our fast, easy and free online resources here.

Have More Rainy Day Funds in Place

Without savings, a financial shock—even minor—could set you back, and if it turns into debt, it can potentially have a lasting impact.

Setting up a dedicated savings or emergency fund is one essential way to protect yourself, and it’s one of the first steps you can take to start saving. Instead of maintaining one fund for large, unexpected expenses, why not create two? Your true emergency fund is meant for catastrophes that may result in a total loss of income, such as divorce, job loss, or medical or mental disability that keeps you out of work. Set aside “rainy day” funds for urgent but less-catastrophic needs, such as car and home repairs, medical and vet bills, and short-notice travel to be with an ill relative.

How much should you put in each? For the rainy-day fund, financial advisors recommend setting aside about $1,500 for young, single renters and between $3,000 and $5,000 for homeowners, depending on how much upkeep your home needs. Your secondary emergency fund, you should have enough to cover at least six months of expenses. If starting small, try to set aside at least $500, but work your way up to half a year’s worth of expenses.

Paying Down Debt

Now that you have your rainy day fund set aside, you can start paying down some of your debt. People often find that a lot of their budget goes to paying off debt, which can make it even harder to devote money to emergency savings. There are a number of different options for paying off debt that may make sense for your situation.

Whether your current debt is your car payment or a credit card bill, it’s always a good idea to pay a little more than the minimum. You’ll save the most by paying off debts in order of highest to lowest interest rate. But eliminating the debt with the smallest balance first—even if it doesn’t carry the highest rate—may give you the momentum you need to stick with the plan.

If you feel overwhelmed by debt or your efforts to pay off debt are not making progress, a money management plan could be a helpful tool to lower your interest, save money and pay off debt faster.

Re-Allocate Your Assets

Financial advisors suggest young people who have time to withstand market changes should invest their nest egg in stocks and people closer to retirement age should ramp up their holdings in bonds and cash. This offers lower potential returns than stocks – but less volatility.

The asset allocation that’s right for you depends on your capacity and tolerance for risk. The former gauges how a downturn might impact your lifestyle or derail your goals. The latter is how much of a loss you could stand before you abandon your plan. Rebalance your holdings periodically to make sure they’re in line with your target mix.

Furthermore, you may already have some amount of assets that could be channelized to your emergency fund. It could be extra cash lying around in your savings accounts, some fixed deposits that are not linked to any particular goal, among others. You can allocate some of that amount towards your emergency fund.

Final Thoughts

When the unexpected happens, it’s downright debilitating to your long-term financial health. A financial emergency plan is an exceptionally valuable tool for an unexpected situation that often happens in life.

Finding the right Fiduciary that fits your goals and lifestyle doesn’t have to be hard. The trusted team at Agemy Financial Strategies is here for your every step of the way to make some real progress on your journey to financial freedom this coming year.

For more information on money management and financial emergency planning, talk to one of our financial advisors here today. 

 

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