Your 2020 Financial Checklist

Your financial strategy should be reviewed and updated regularly to consider any lifestyle changes that occurred in your life. The review needs to occur as changes happen and at a very minimum once a year.

One important thing to think about as you do a financial review is to take into account the potential for a recession. We don’t know when it’s coming or how serious it will be, however, considering the regular cycle of bust and boom times, we are overdue for a recession. 

One of the best ways to prepare is to pay down your debt. Having no debt puts you into a much better position to weather economic storms. Along with paying down debt, don’t be hesitant to err on the side of having a year or two of expenses in cash–just in case.

A potential recession should not stop anyone from saving, investing and planning. Typically, recessions happen every 7-10 years. Don’t be afraid of it, just plan for it and be sure you have an emergency fund. There has never been a recession that lasted more than 24 months. If you have cash set aside, you won’t have to sell stocks and mutual funds that have decreased in value as a result of the recession. 

While having more in cash assets is a good idea to prepare for a potential recession, you should also analyze your investments to be sure you are balanced between aggressive and conservative positions. The closer you get to retirement, you will want to move to a more conservative position.

If you plan to retire in 2020, it is important to understand what you are currently spending to support your lifestyle.  Many retirement calculators suggest using 75% of your current budget as your estimated retirement budget. The rationale is that your taxes may be lower due to reduced income and your living expenses may also be reduced for work-related items like clothes, transportation, parking, dry cleaning, lunches, etc. But your expenses may increase for items such as travel and hobbies, especially in early retirement.

Medical and health care for the next 20-30 years can be a big number that needs to be factored into your retirement budget. You may want to inflate your pre-retirement budget by 10% to put yourself in the best position to have enough money to fund your lifestyle through many years of retirement.

If you are working and have not done so, max out your 401K contribution. The longer you have till retirement the better off you will be if you save as much as possible for your long-term needs. If you increase the amount you are saving from 6% to 9%, over 30 years your retirement savings could increase by more than $300K depending on the amount you are investing. 

In 2020, the maximum contribution you can make to an IRA remains at $6,000, and if you are over 50 you can make a “catch up” contribution of $1,000. The maximum contribution to a 401K or 403B is $19,500 with the “catch up” contribution at $6,500.

Many employer-sponsored retirement plans offer 12-15 investment options, but their matching contribution can be heavily weighted to company stock. If your match is based on company stock it would be wise to not include company stock as a primary investment option to allow for maximum diversification of your portfolio.

If you are age 701/2 you will have to consider minimum required distributions from your qualified plans. The minimum changes each year, based in your age and account value.

If you plan to retire before your full retirement age, you need to have a good understanding of how your lifestyle will be funded, including the costs of your medical insurance since that will most likely be an out-of-pocket expense. Take a long hard look at how your long term savings can fund your lifestyle for the number of years you have until you qualify for retirement benefit and Medicare. That plan takes many years of preparation, so start planning well in advance.

Have at least one year of expenses in cash so you are a year separated from any market downturns. Having a year in cash separates you from market fluctuations and gives you some breathing space for the market to recover before you have to take money out.

For people just starting out in the job market, it is important to have a long term perspective. The stock market goes up and down, but in the long term, it goes up. Early in your career it is most important to build the discipline and habits of building long term savings and not using it for short term spending. If the market does go down, don’t panic, as you can buy more stock when the prices are lower. Time is on your side if you won’t need the money for 30 years.

Join our Financial checklist podcast with one of our favorite financial planners, John Kennedy of Candor Path Financial for more on this topic.

Evelyn Bean ~ Compass Catholic

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