“Those within 5-10 years of retirement need to get serious about money management and planning, or face possible failure.” – Angie Politarhos
While it’s always worth checking in on your finances from time to time, it’s especially critical as more of the economic upheaval created by the COVID-19 pandemic is gradually revealed.
Resetting your finances in the wake of a major life crisis such as a pandemic is not a particularly pleasant or easy task. A reset requires you to be realistic about your situation and be willing to change money habits to keep from falling behind. Now is an excellent time to talk things over with an advisor, especially if you are working from home or are unemployed. You’ll want to know what, if anything, you’ve managed to save, which debts have gone unpaid, how your investments are faring, and where you stand with your retirement and income planning.
Debt and the pre-retiree
Carrying consumer debt into retirement is generally never a good idea. Unfortunately, our current economic reality may mean that you have taken on debt to make it through the pandemic. Financial life designer and debt reduction specialist Kristin Colca says that bringing a load of consumer debt into retirement may result in a monthly cash flow reduction. Or, you may have to draw down your savings much more quickly than you planned. “In either scenario, you’ll face the possibility of running out of money before retirement or having to struggle to maintain your lifestyle,” she says. Colca says that fortunately, many retirees and pre-retirees may be able to benefit from high-tech software designed to squeeze every penny from every dollar. “The ability to make each dollar do the work of three or four is crucial to riding out a volatile and unreliable market. Instead of relying on emotion-based planning, technology helps you “do the math” and see the truth more clearly.”
Even if you choose not to take advantage of budgeting and debt reduction software, you can take some measures on your own to reduce the impact of so-called “bad debt,” such as credit card balances and short-term loans. For example, you can sometimes negotiate a better interest rate with a credit card or finance company, put your payments on auto-pay, or add the amount to your monthly minimum whenever possible. It’s necessary, to be honest with your financial planner about how much you owe so they can create or amend an economic blueprint that makes room for these debts.
Could refinancing your home help?
Lower interest rates are a siren’s song for many people, luring them into purchasing things they don’t need, such as new cars or new homes. However, the reality is that any debt represents a liability and weakens your financial position. This goes for refinancing your home as well. Banks are not in the benevolence business. Although shorter loan terms and lower rates could save you a lot of money over time, banks have a way of sneaking in loads of fees. Additional fees could potentially offset the benefits of a re-fi. Before deciding to refinance, be sure you sit down with an expert and determine if it makes sense in your unique situation.
Lower your most common monthly expenses
Even if you are doing OK during the pandemic, you probably look around and realize how easily that could change. You want to do everything possible to stash as much money as you can into an emergency fund to prepare you for any speed bumps that come your way. Take an unflinching look at where your money goes and make adjustments. For example, you may qualify for discounts on things such as cell phone service, electricity, or internet service. List all your recurring bills and research which ones offer discounts and promotions.
Look at the big picture and continue to invest.
Keeping your eyes off the market’s mood swings allows you to focus on the big picture. Of course, volatility makes everyone a little nervous. It’s natural to want to hold back on investing when times are uncertain. However, not investing may mean that you will not have enough money when the time comes to a stop working.
Instead of slowing down on investing, you may want to increase contributions to your retirement accounts or purchase cash-flowing assets. If you are highly risk-averse, consider adding annuity or life insurance products with guarantees to your portfolio.
Summing it up:
The pandemic has been a tough pill for all of us. However, by focusing on making positive lifestyle and financial changes, you can soften some of the blows. Getting honest with yourself about debt and spending is a great place to start.