New Year resolutions are a popular tradition that help people live happier and healthier lives. This year, adults should add saving for retirement to the list of personal goals that they want to accomplish. Planning for retirement is an ongoing process that involves an honest assessment of where a person stands financially and how they can realistically work toward achieving their goals by the time they retire.
Get Your Retirement Goals in Order
In a 2019 study published by GOBankingRates, approximately 64 percent of workers revealed that they had less than $10,000 saved towards retirement. In addition, about 40 percent of workers aged 55 or older reported that they had no retirement savings at all.
Make the following retirement goals a priority in the New Year:
Create a Life Long Budget
Budgeting is creating a spending plan that helps ensure that there is always adequate money for essentials. A budget should outline how much money is coming in after taxes, how much is being spent and how much is being saved. A spreadsheet or online budgeting tool can be used to track income and spending.
Calculate Your Personal Net Worth Annually
Once a year, adults should calculate their net worth to determine where they stand financially. Create a list of assets (money and property owned) and subtract liabilities (what is owed) to determine personal net worth. It is not uncommon for a person’s net worth to decline during unfavorable market periods, but net worth can gradually increase over a person’s earning years.
Project the Cost of Essential Big-Ticket Items
Prepare for the expenses of big-ticket items ahead of time. For example, if a house down payment or money for college tuition will be needed soon, set these funds aside or begin saving towards these expenses. Keep funds liquid that will be needed within a few years in a safe investment, like a savings account or short-term certificate of deposit (CD).
Prepare for Emergencies
From vehicle breakdowns to medical emergencies, unexpected scenarios can occur at any time, resulting in large, sudden expenses. Create an emergency fund that includes at least three to six months’ worth of essential living expenses and do not touch this money unless a true emergency occurs.
Optimize Your Portfolio
Retirement portfolios should be balanced between preservation of funds for future needs and the growth of capital to protect against inflation. Timing markets can be challenging and impractical. It is best to develop a plan that is suitable for all markets and aligns with set retirement goals.
Focus on Your Overall Investment Mix
Consider how to invest money for a balanced mix of investments. Start with a targeted asset allocation consisting of a mix of bonds, stocks and cash. Investments should be in sync with long-term goals, time frame and risk tolerance. The longer that a person has to save and invest, the more they are able to take advantage of favorable markets.
Diversify Across and Within Asset Classes
In a diversified portfolio, assets do not correlate with each other. Instead, when the value of one asset rises, the value of another falls. Investments should be diversified to minimize risks and reach retirement goals with fewer interruptions. Consider adding exchange-traded funds (ETFs) and mutual funds to an investment portfolio. You should consider speaking with your financial professional to determine what may be the best solution for your needs.
When preparing for retirement, consider how to manage taxes best. Place more tax-efficient investments, such as municipal bonds and ETFs, into taxable accounts. Next, place tax-inefficient investments, such as real estate investment trusts (REITs) and mutual funds, into tax-advantaged accounts. Retirement accounts like Roth or traditional individual retirement accounts (IRAs) are examples of tax-advantaged accounts. You should consider speaking with your tax professionals to determine what may be the best solution for your needs.
Have Someone Monitor Your Portfolio
The performance of a portfolio should be evaluated at least two times a year using the proper benchmarks. The long-term progress that is made on retirement goals is more important than the short-term performance of a portfolio, so keep this in mind when monitoring investments. Outsourcing this task to a professional can help ensure that no important details are overlooked.
Consider the Pros and Cons of Long-Term Investing
Long-term investing can result in both advantages and downsides. There is no need to monitor long-term investments on a daily or weekly basis, but long-term investments can result in slower profits. The annual returns are also generally lower. However, holding an investment longer than a year can result in favorable tax concessions.
Talk with Campbell Wealth Management About 2021 Retirement Goals
The start of a New Year is the perfect time to get onboard with retirement planning. Setting retirement goals early helps ensure that a person is financially stable when they reach their golden years. For help with retirement planning, retirement goals or to speak with an experienced wealth management professional, contact Campbell Wealth Management, Inc.
This is intended for informational purposes only and should not be construed as advice. Investing involves risk including the potential loss of principle. Consider your risk tolerance before investing. Asset allocation or diversification does not guarantee against loss or ensure a profit; it is a method to manage risk.