That’s the question that came to my mind when I read a Kiplinger’s Personal Finance magazine survey released in January. According to the results, nearly 60% of Americans withdrew or borrowed money from their IRAs or retirement plans in 2020. The CARES Act provisions that provided favorable tax treatment for these withdrawals were designed to help Americans cope with the financial challenges of the pandemic. As we shift gears in 2021, the question that comes to my mind is, “What’s next?”
A CARES Act withdrawal, market volatility or the pandemic torpedoing your savings are just a few examples of 2020 happenings that might motivate you to revisit your retirement plan in 2021. If you’re going down that path, learn from last year and expect the unexpected. Here are five factors to consider as you refresh your plan for retirement.
1. Working longer may not be an option. More than 30% of the survey’s respondents plan to work longer to make up for the unexpected intrusion into their retirement nest egg. That’s good if you’re willing and able. However, health, an uncooperative employer or a bad job market may not be on the same sheet of music. Ultimately, your work plans may change -- even if you don’t want them to.
Planning implications: Don’t count on your ability to keep working into your golden years. While it, in fact, may be your choice when the time comes, don’t let the success of your plan hinge on it.
2. Final expenses are on the rise. Final expenses such as funerals, memorial services, caskets and cremation are not immune to inflation. According to the National Funeral Directors Association, the average cost of a funeral and burial is around $10,000. But here’s the kicker, according to the Bureau of Labor Statistics, over the last 30 years, the increase in funeral costs has outpaced consumer prices for all items by more than 100%.
Planning implications: Have a plan for your final expenses. Your plan should include funding (money set aside, final-expense life insurance, etc.) and how to administer them (will, letter of instruction, account ownership, beneficiary designation, etc.). USAA Life Insurance Company offers a range of solutions to help you cover final expenses. Call 888-531-9546 to learn more.
3. Inflation has been gone but not forgotten. Don’t forget to factor inflation into your plan. While it’s been mild -- only eclipsing 3% once in the last 10 years -- the fiscal and monetary moves we’ve made to battle the pandemic point to inflation ahead.
Planning implications: Account for it. In talking with folks on a daily basis, my sense is that prices are going up in a way that is not reflected in reported inflation numbers. Build rising prices into your retirement savings and retirement income plans, and you won’t be sorry.
4. You control several key levers. Unlike inflation, the markets or the whims of your employer, there are a few key retirement plan inputs that you totally own. These include your commitment to saving, your ability to avoid emotion-based decisions and your lifestyle choices.
Planning implications: As we put the pandemic in our past, focus on the things that you control.
5. Clean up your balance sheet. Yes, we all want to see the economy kick back into high gear, but don’t let your leveraged spending be the fuel that makes that a reality. Rolling into retirement with plenty on the asset side of your balance sheet and little to nothing on the liability side is a recipe for success.
Planning implications: Planning to shed debt may seem a long way from planning and preparing for retirement. However, if you successfully execute your debt elimination plan, your retirement plan will fall into place a lot easier.
On a positive note, around 70% of the survey’s respondents felt things were going to improve in 2021. As that happens, don’t let the excitement -- and relief -- cause you to lose sight of your retirement plan.