Riding off into the sunset of retirement

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While the pandemic threw almost everyone for a loop in 2020, as another new year begins, it’s time to reset and begin preparing for 2021. This includes setting financial goals for the new year.

Whether young or old, many of these financial goals revolve around planning for the future, especially for retirement.

That’s why, regardless of age, it’s important to begin making choices that will pay off once your career comes to an end, so here are some tips from financial experts to help you do just that.

Take stock of where you’re at

Whether or not your retirement plans are looking secure, the new year is a great time to review where you stand.

This year more than usual, it’s important to look back on any major changes that occurred through 2020 that have affected your finances and reevaluate those financial goals for the new year, taking into account the current state of the market. 

For Erick Arndt, a financial adviser at Virtue Wealth, balance is key when it comes to setting these financial goals.

“Look at your portfolio and make sure you have balance,” Arndt said. “It’s hard to turn away from great market returns, but remember: Things correct, and you don’t want to be on the other end of that correction because it’s painful.” 

A correction of such can very well be on the forecast for early 2021, as large segments of the economy continue to face challenges.

“A rising tide has brought all boats up, but I think that it doesn’t go on forever, and I think that’s going to start changing in 2021 as we start to figure out not all companies can go up,” Arndt said. “Like Warren Buffett said, ‘You don’t know who’s swimming naked until the tide rolls out.’”

Financial analyst Peggy Williams agreed, suggesting everyone take a close look at what is in their portfolio, given the ongoing volatility in the financial markets.

While it’s easy to get swept up in the fear of a crash or even the fear of missing out on gains, Williams suggests staying practical with portfolios, as giving into these fears can set you up for unnecessary losses or stress.

Always keep your time horizon in mind

“I think time horizon is a big thing and clarity about the future,” Jerrod Ferguson, vice president at Vance Wealth, said. 

Someone’s time horizon is specific to their financial situation and the clarity they have on their financial future, while someone’s retirement plan typically consists of a longer time horizon. 

“It’s a marathon, not a sprint to the end of the yard,” Arndt added. “Understand your horizon and think how far away it is, and then invest according to that.” 

Arndt suggests thinking of a retirement plan as a pension from a government entity. “It’s something that you want to have continually increasing year over year.”

This means the closer you are to retirement, the more you should focus on minimizing loss, rather than getting the upside of investments.

Take the hits the pandemic brought to heart

However they’ve fared this past year, Williams suggests everyone be brutally honest with themselves about whether they could course correct if another “surprise,” like the pandemic, impacted income streams.

“I would not only proceed cautiously, but with a big safety net,” she added. “These uncertainties aren’t going away anytime soon, and it’s better to be prepared to face those blows head on.” 

The pandemic showed how at risk retirement funds really are, as many withdrew money from their 401(k) plans to pay for their expenses when the CARES Act allowed qualified individuals affected by COVID-19 to withdraw up to $100,000 from eligible plans.

Even those who earned good salaries yet had limited savings borrowed from their retirement plans this past year, according to a survey by Edelman Financial Engines.

The study found that more than 25% of the 2,000 respondents aged 40-65 and had an annual income of more than $100,000 made early withdrawals due to the pandemic, with an average of six years expected to regain those funds.

These withdraws only have highlighted the need for emergency funds and savings accounts.

“Keep in mind that emergency funds are never exciting when you don’t need them,” Arndt said. “Nobody gets excited about emergency funds, but man, when you need it, it’s a wonderful thing to have.” 

Regardless of whether your retirement plan was built to withstand the type of market volatility brought on by the pandemic, use the past year as a wakeup call and start taking retirement planning seriously — whether you’re 30, 45 or 65.

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