Are you on track to retire comfortably? What are your financial goals? How much income will you need to generate each month when you have retired? What might be some of your longer-term goals outside the financial arena, but goals that would be aided by a larger pool of savings?
Our regular check-ins are designed to measure progress toward your goals, making adjustments as life’s journey unfolds. Saving for retirement is a long game; It’s a marathon. You could compare it to the fable The Tortoise and the Hare. A sprint won’t get you to your destination. Slow and steady progress will.
Unfortunately, 75% of Americans receive no professional assistance for this long haul, according to a 2021 CNBC and Acorns Invest in You Savings Survey. In our view, that’s simply unacceptable. It leaves far too many folks exposed to the many financial pitfalls that are lurking. As Ben Franklin said, “If you fail to plan, you are planning to fail!”
Fortunately, you do have professional support and a plan in place. Following are seven ideas that we encourage on a regular basis. You have already implemented many of these concepts; others you may want to do more with as we move into fall. And they are all excellent reminders of what keeps you on the path toward financial independence.
Too many people simply guess what they will need in retirement, and many don’t have a written plan to reach what goals they have set. Others simply don’t have any goals. If you don’t have goals, you’ll drift, financially speaking.
A comprehensive and holistic financial plan is a must
While regular savings is important, a roadmap that takes you to your goals is critical.
Did you know that if you start saving $600 per month at age 30, you will have $1 million when you turn 65, assuming an average return of 7% per year.
If you start saving at 20, $300 per month will allow you to hit the same goal.
We’re not saying that $1 million is the magic number, but the example highlights that consistency, starting early, and the magic of compounding can help you reap big rewards.
We assist you by advocating a diversified portfolio that generally includes stocks, bonds, fixed income and more. While much work goes into the individually crafted plans we recommend, much of what we counsel is based on the evidence that long-term exposure to stocks has outperformed simple savings accounts.
We help to bridge the divide between the simple savings account and a diversified portfolio.
- Never stop saving
After paying for housing, food, and other expenses, are you able to consistently save money? A 2019 survey by Bankrate suggests that one in five Americans aren’t saving anything, and only one in six save over 15% of their income.
Why aren’t we saving? According to the survey, 38% of working Americans have too many expenses. For example, on average, Americans shell out more than $2,900 a year on restaurants, prepared drinks and lottery tickets.
We aren’t saying that a spartan existence that eliminates frills, fun and entertainment is the path to take. Instead, examine your expenditures closely. You might quickly find ways to cutback while still enjoying life’s pleasures. And consider paying yourself first when you receive your check by setting up an automatic payment into savings.
Retirement savings is a key component
If you want to stay on track for retirement, the importance of regular contributions to a retirement fund is critical.
Employee 401(k) contributions for 2021 top out at $19,500, with an additional $6,500 catch-up contribution allowed for those that are 50 years or older. At a minimum, don’t leave any free money with your employer. Consider contributing what you need to receive your employer’s full match.
For 2021, you may contribute up to $7,000 if you are 50 or older. Just be aware that the IRS imposes various limits based on your income. We’d be happy to share additional details, or you may check with your tax advisor.
Did you get a new job?
Congratulations. As you look at benefits, how quickly can you start contributing to your company’s retirement plan?
Plus, don’t forget about your prior 401(k) plan. Consider your rollover options - You may choose to leave the money in your former employer’s plan, if permitted; rollover the assets to your new employer’s plan, if one is available and rollovers are permitted; rollover to an IRA; or cash out the account value.
Unless there is an extraordinary circumstance (and we’re not talking about a new T.V. or a vacation), don’t fritter away your retirement assets. Withdrawals from these tax-deferred plans will probably be subject to taxes and penalties.
Get out of debt today
Some debt can be productive. For example, a mortgage allows you to purchase a home and build equity instead of renting. But in many cases, debt can be counterproductive.
Your student loans helped you pay for your education. Although the situation with student loan debt is fluid, this is debt that’s best paid off. Credit card debt also falls under the unproductive category. Besides, many come with high interest rates.
As with credit cards, student loans and other unproductive liabilities, we can offer you guidance that helps reduce and eliminate burdensome liabilities.
Check in with Social Security
The Social Security website, ssa.gov has a considerable arsenal of resources. It’s a good idea to check in online and make sure there has been an accurate accounting of your annual income. If your income is understated, your benefits will be shortchanged.
Our goal is to help you replace a substantial portion of your income when you leave the workforce - how much will depend on your goals and what you may want to do in retirement.
But we firmly believe that these ideas are a great place to start, putting you and keeping you on track for your retirement.
The Covid recession and recovery
The economy hit a peak in February 2020 and bottomed out in April of the same year, according to the National Bureau of Economic Research (NBER), which is viewed as the arbiter of recessions and economic recoveries.
In determining the peak and trough of the economy, the NBER considers several indicators of employment and production. “All of those indicators point clearly to April 2020 as the month of the trough,” the NBER said.
While the NBER made its determination last month, it simply confirmed what investors and economists have known for a long time: the two-month recession was the shortest on record.
When lockdowns and shelter-in-place orders eased in May 2020, activity began to rebound, according to U.S. government reports. In some cases, the rebound was sharp.
On a historical note, the third-shortest recession was tied to the Spanish flu in 1918 (seven months), while the 1957 recession, which lasted eight months, came in fourth place and was centered around the Asian flu pandemic.
However, the end of a recession doesn’t mean that the economy has returned to its prior peak. It simply means that the economy stopped contracting in April and activity turned up in May.
While the shortest on record, the Covid recession was also the fastest decline on record, and pandemic-related distortions have yet to abate. They may never completely abate. Some industries have performed incredibly well over the last year, and others continue to struggle.
During the first quarter and second quarter of 2021, Gross Domestic Product (GDP), which is the broadest measure of goods and services in the economy, expanded at an annual rate of 6.3% and 6.5%, respectively, according to the U.S Bureau of Economic Analysis.
While Q2 missed analyst forecasts of 8.4% (Wall Street Journal), it was enough to push GDP above Q4 2019’s peak.
Notably, spending in Q2 was particularly strong for service-related businesses tied to activities outside the home. However, spending on the broad category of services has yet to regain its former peak.
Stocks reach new heights
Major averages, such as the Dow Jones Industrials, the NASDAQ Composite, and the S&P 500 Index all touched new highs last month, building on impressive gains over the last year.
Key Index Returns
Dow Jones Industrial Average
S&P 500 Index
Russell 2000 Index
MSCI World ex-U.S.A*
MSCI Emerging Markets*
Bloomberg Barclays U.S. Aggregate Bond TR
Source: Wall Street Journal, MSCI.com, Morningstar, MarketWatch
MTD returns: June 30, 2021–July 30, 2021
YTD returns: Dec 31, 2020–July 30, 2021
The robust economic recovery, which few analysts had predicted during the lockdowns and shelter-in-place orders last year, has driven corporate profits higher, and in turn, fueled the rally in stocks.
While rising profits have been a big tailwind for stocks, the Federal Reserve has played a role, too, by pushing interest rates to rock bottom levels.
In addition, the Fed continues to buy about $120 billion in Treasury bonds and mortgage-backed securities each month, which pumps additional cash into the financial system.
As the economy expands and creates new jobs, Fed Chief Jerome Powell suggested last month the Fed is getting closer to announcing a plan to reduce its monthly bond purchases, but he did not provide specifics.
Nevertheless, he continues to insist that it’s too early to start talking about raising interest rates.
Ultimately, the path of the economy and the pace of economic growth, coupled with what happens to inflation, will have the biggest influence on when and how quickly interest rates might rise.
I trust you’ve found this review to be educational and informative.
Let me emphasize that it is my job to assist you. If you have any questions or would like to discuss any matters, please feel free to give me or any of my team members a call.
As always, I’m honored and humbled that you have given me the opportunity to serve as your financial advisor.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. This is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.