As we emerge from the pandemic, it’s the perfect time to reassess your financial goals and get ready to thrive financially post-pandemic. The experience over the past 1 ½ years has given everyone a whole new perspective on their personal and financial lives. Now is the time to think about what you really want from your future and the financial steps you need to take now to readjust your course.
Maybe this experience has given you a different work-life balance and you want to avoid a long commute. If you can work remotely, you may be interested in moving to a new home with more space even if it’s far from your job. Or you may be interested in moving into the city as more activities open up. You may want to focus more on trying to retire early, or starting a business, or pulling back and working part-time – or finally pursuing your dream job. Perhaps not being able to travel over the past year made you want to travel even more often in the future.
All of these life decisions have financial implications. If you want to make some major changes to where you live, how you work, or what you do for fun, you can start taking steps now to help reach those goals and financially thrive in the post-pandemic life you now envision for yourself. Consider your new goals and how you plan to reach them over the next 10 or 20 years.
What do I want from my housing?
Do you want to buy a larger house, downsize, or just change your environment for the next few years? Do you want to move closer to family or explore life in a new city? Would you love to have a second house where you can escape more frequently, even if it’s just a cabin in the woods or on a lake? Is this how you want to financially thrive post-pandemic?Think about what you really want from a home, and start setting specific goals – decide on a time frame and how much you want to save for a down payment, and then set a monthly savings goal. Pay close attention to protecting or improving your credit score, (which is also an asset) so you can get the best mortgage rate – check your credit report for free at www.annualcreditreport.com and learn about improving your credit score with MyFico’s credit education guide (https://www.myfico.com/
Or do you want to focus on paying off your house early so you don’t have to worry about those expenses later on? Consider refinancing your mortgage to today’s low interest rates and pay extra each month so you can accelerate your payoff schedule.
Have you changed your retirement goals?
Has the experience from the pandemic made you appreciate having some time away from work? Did it accelerate your interest in retiring earlier than originally expected? In that case, you can prioritize setting aside more money for retirement to financially thrive in this post-pandemic world. If you have a 401(k) or other retirement-savings plan at work, contribute at least enough to take advantage of any matching contributions from your employer. Also consider saving in a Roth IRA, which is a great way to have your money do double duty: You build tax-free savings for the future but also have the money available in case you need it earlier. You can contribute up to $6,000 to a Roth IRA in 2021 (or $7,000 if 50 or older), the money grows without the drag effect of taxes through the years, and you can withdraw the earnings tax-free after age 59 ½ (as long as you’ve had a Roth IRA for at least five years). But you also have flexibility to withdraw your contributions without penalties or taxes at any time and for any reason, which can serve as a back-up emergency fund. To qualify to make Roth IRA contributions in 2021, your modified adjusted gross income must be less than $139,000 if single or $206,000 if married filing jointly (the contribution amount starts to phase out if you earn more than $124,000 if single or $196,000 for married couples). If you get extra money from a tax refund or stimulus payment, consider saving some of it in a Roth IRA.
Do you want to have a dream job?
The pandemic made many people refocus their priorities and appreciate living life in the moment. Rather than working in a stressful environment, perhaps you have become more interested in charitable work? Or maybe you want to start your own business? Or you may be thinking about taking a stress-free part-time job at an interesting place. As many people lost their jobs or were furloughed during the pandemic, they reconsidered what was most important to them. And if you’re in a job you love, you may not feel the need to retire as early. Working after retirement, even just a part-time or freelance job, can help stretch your retirement savings.
Start thinking about your timeline for making the change and steps you can take now to help you make the move, such as networking, getting certifications in the new field, or starting a freelance side business that could eventually grow into a full-time job. With the expansion of online education from the pandemic, it’s more convenient to take classes from anywhere without a long commute. You may be able to claim the Lifetime Learning Credit for graduate school or professional certificate programs, which can be worth up to $2,000 in 2021. To qualify, you must take the classes at an eligible educational institution and your modified adjusted gross income in 2021 must be less than $90,000 if single or $180,000 if married filing jointly.
Build your emergency fund to prepare for future surprises
The pandemic showed people that no matter how prepared you are for the future, you can’t control everything. Sometimes unexpected expenses or situations arise that you’d never even considered. It also showed people the importance of building up an emergency fund, so you can be prepared for unexpected expenses – no matter what they ended up being. Some families had to scramble and find extra child care when schools were closed, or had to figure out how to pay the bills for several months after losing their jobs. Maybe you had extra medical expenses or had to care for aging parents. No matter what your special needs are, having an emergency fund can help you weather these unexpected expenses without landing in expensive debt. This is arguably one of the best ways to thrive post-pandemic It’s a good idea to have at least three to six months’ worth of expenses in a safe and accessible account (such as a money-market account) that you can tap at any time. Add some more money to the account if you get a tax refund, stimulus payment, or some other extra money. Many people who had an emergency fund had to use it this year and know how important it was to have the cash cushion. Focus on replenishing the account if you had to take withdrawals.
Think about where you’ll live as you get older
As difficult as it can be, when you reach your 50s or 60s it’s also important to think about where you would want to live as you get older and start to need help. The pandemic made many people reassess their plans for aging. Some saw the experiences of people in nursing homes and want to take extra steps to be able stay in their homes if they need help. Or they may want to move closer to family, or to a retirement community where they have access to all levels of care when needed. Long-term care is expensive, especially if you want a caregiver to come to your home. Consider getting long-term care insurance, or a hybrid policy that provides both long-term care and life insurance, or building up savings to help cover these expenses. This step can help you thrive financially post-pandemic and beyond. Long-term care insurance premiums have been rising, but if you save money in a health savings account before you retire, you can withdraw money tax-free every year to help pay long-term care insurance premiums and other health-care expenses. Also think about other steps that can help in advance, such as home improvements that can make your house more accessible as you age. If you start preparing for these expenses now, you’ll have more options in the future.
YOUR ADVISOR IS STANDING BY
Consider getting extra help toward financially thriving post-pandemic. With so many changes to your taxes and your finances, this may be the year to get extra help from a financial planner. A fee-only fiduciary financial advisor can offer expert tax planning as well as help you set your financial goals and priorities – so you can take advantage of all of the tax breaks you deserve and make the most of your financial-planning opportunities.
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