2020 was a devastating year for millions of Americans, local businesses and many industries.
As we begin a new year, personal finances continue to be top of mind for many Americans – many of whom need to re-think their own workforce and retirement planning due to COVID-19.
Here are 3 things to consider when making your personal financial plan for 2021.
1. Go back to basics
While the general rule of thumb (outside of a global pandemic) is to have an emergency fund of three to six months of expenses if your fund has been depleted due to a job loss in 2020, set realistic goals for yourself and know that it may not be possible to have that emergency fund replenished in the first few months of 2021. Instead, re-establish a long-term goal and try to build the fund back up again during the first half of the year.
2. If you’ve been forced out of the workforce in 2021, re-evaluate your career expectations for the New Year
As 2021 begins you should know that a variety of industries have been booming during the coronavirus pandemic including IT service providers, telehealth and home health care, e-commerce, construction and landscaping, food services and several others – all of which have been hiring.
Even if these jobs may not necessarily be what you originally imagined for yourself, if you’re looking for employment, it’s important to re-calibrate your expectations and take a job that you may not have originally expected.
Not only will it provide a steadier stream of income and provide additional benefits for you and your family including health care, mental health and potential subsidies of childcare services, but perhaps most importantly in the long run, having the job will keep you off the sidelines.
The longer you sit out, the worse it gets, and the harder it will be to get back into the workforce.
3. Retirement may come earlier than expected for some. Here’s what to do
Lastly, with over 20 million unemployed during the peak of COVID-19 in April 2020 according to the U.S. Bureau of Labor Statistics, many Americans including Baby Boomers and Gen X-ers have been forced to retire early this year or are considering retiring earlier than anticipated in 2021.
While the unemployment rate has been decreasing and edged down to 6.7 percent in November, part of the reason is that Americans are retiring earlier and leaving the workforce.
However, before making the decision to retire, it’s important to look at your individual assets and calculate the kind of income those assets will generate to see if retirement is financially feasible.
People are living much longer these days. Thanks to greater awareness of health and wellness coupled with access to good health care, general life expectancy is higher today than at any other time in U.S. history.
That’s why retiring at age 55 may not be financially realistic for everyone. For example, if you’re 55-years-old, but are healthy and are expected to live until age 95, are you sure your assets can support you for the next 40 years?
Make sure you run the numbers on different retirement withdrawal strategies, including fixed percentage withdrawal and the like. The frequently used rule of thumb for retirement spending is known as the 4% rule, which is when you add up all of your investments and withdraw 4% of that total during your first year of retirement, to make sure your assets are adequate for retirement.
If you are anticipating 40 years of retirement, make sure your withdrawal strategies will allow for that timeframe and no less.
Bottom line: Make these important calculations before making the major decision to retire early.
Why? Because it’ll be harder to get back into the workforce at age 65.