The story below is from our November/December 2020 issue. For more stories like it, Subscribe Today. Thank you!
Just in time for a new year of planning, get our financial tips for every age group.
This year has marked uncertainty levels most haven’t experienced in their lifetimes. It’s no wonder people are feeling helpless and paralyzed. The good news is, there’s a lot that can be done to take control of one’s financial future.
The right strategies are dependent on age and circumstance. Someone in Generation Z who’s just been laid off is going to have very different issues and concerns than a Boomer looking toward retirement. Some approaches are available to all age groups, but most come down to what you owe and what you’ve accumulated.
For everyone, paying better attention to where their money is and where it’s going is wise. With the daily daunting task of living with unknown futures that’s created a roller coaster stock market and financial security for anyone tough to predict, this is more important than ever.
Loosely looking at age groups (circumstances are more important in developing smart financial strategies), here’s a bit of a roundup of the key considerations:
20s: Debt Relief
Recent college graduates may be feeling like they’ll never get out of debt. This year was even tougher with graduation ceremonies cancelled and unemployment hitting historic highs.
Federal student loan debt now offers income driven repayment plans. There’s also a 10-year forgiveness if payments are assessed based on tax returns. Required payments can be as low as $0. Find details at https://studentaid.gov/manage-loans/repayment/plans/income-driven. Don’t make the mistake of refinancing through a private company, as this will eliminate the government choice for income-based payments and the forgiveness opportunity.
For recently married couples who are starting to think about having kids, saving, budgeting, and getting out of debt should be a top priority. That might not be enough, particularly when layoffs are added to the mix.
Now’s a good time to utilize technology. Whether it’s to get creative with a web-based business venture or to research training options, the extra time at home can be used to learn. While it can be hard to stomach after one has ventured into the job market, sometimes the best answer is to invest a little more in developing sought-after skills.
Virginia Western has a number of certificate programs that can be completed in as little as six months. According the Amy White, Dean of STEM Center for Science and Health Professions at the college, computer science & information technology is particularly relevant today. Areas like networking and cybersecurity are not only in-demand now, but are fields where the need for skilled workers will extend far into the future. “With teleworking, how effective is that?” she asks. “There’s great opportunity if they don’t want to stop at a one-year certificate to get an Associates or a four-year bachelor’s from these programs. It doesn’t matter if we’re quarantined or back with zero restrictions, those jobs are going to be there.”
White also cites biotechnology and mechatronics as wise career paths, with constant queries coming in for workers in these high-paying fields. The school offers one-year certificate programs in all these disciplines, with an option for Mechatronics in as little as one semester.
The Virginia Western Education Foundation provides scholarships for students of all ages. “Many programs that are being born as we speak from the COVID crisis are meant to get people retrained,” says White. Most of these are currently being offered by the government, but White anticipates the private sector will be stepping up with additional funds.
Those of any age who are still in the workforce may want to consider gaining relevant skills in high-paying science and technology sectors to fill current and future needs.
30s: Capitalize on Low Interest Rates
Now is a good time to restructure debt and take advantage of inexpensive borrowing. Jerome Powell, Chair of the Federal Reserve, has indicated he doesn’t anticipate raising interest rates until after 2021.
There are a lot of areas where those in their 30s can reduce monthly payments or overall debt. Mortgage rates are at historic lows. For homeowners, refinancing their largest expense might make sense. Banks are offering products with low or no points. Any closing costs can usually be rolled into a new mortgage. Those with good credit who are paying more than 4.5% on a 30-year note should consider refinancing. Many are finding monthly payments are lower even when converting this debt to a 15-year term.
For those driving clunkers, it might be a good time to invest in transportation you can trust for the next ten years. Incentives for buyers of new automobiles are considerable. Many car manufacturers are offering cash back and low-interest terms extending to 72 months and beyond.
Credit cards are another area to consider. In an ideal world, people pay off the balance on cards every month. For those who foresee a large purchase in the near future, though, payments can sometimes be amortized over time interest-free. Credit card companies have been offering 0% financing for 12 months with cash rewards on as little as $500 spent in 90 days. For those who feel confident they’ll be able to pay off the balance when the 0% term ends, this can be a good way to leverage no-cost money on planned purchases.
40s: Look at Tax Liabilities and Opportunities
Empty nesters face a variety of changes in their tax situation. They lose the child tax credit and other exemptions when kids move out. It’s important at this juncture to explore how taxes may be eroding retirement investments and how to fix this.
Now is a good time to assess assets. For those who are facing a new employment structure that may have them working from home, carefully consider how this is set up. Tax ramifications can be huge when thoughtful foundations aren’t set for a shift from W-2 to 1099 work circumstances.
This is the time to be planning for retirement. Now is when people usually seek professional help because there are so many variables to consider when trying to maximize income and investments.
Fee-only is the only true fiduciary, so it makes sense when people begin to explore financial advisor support to understand why this is important. In the past, fiduciaries could get paid twice from their advice, presenting a conflict of interest. They’d earn income from an annual percentage payment of portfolio holdings, but could also collect commissions for pushing clients to particular products. Laws have changed a lot in recent years to encourage fee-for-service financial planning advice over commission or portfolio percentage compensation, but not everyone offers this. It’s wise to seek out a professional advisor who offers hourly consulting rates.
50s: Retirement Planning
For those who didn’t seek out that professional financial advisor in their forties, now’s the time to start making up for lost time. Get some help to gain perspective on the wisdom of your retirement savings strategies along with the annual tax ramifications of your decisions.
This is also a good time to do a stress test on your retirement financial plan. This is a computer simulation that looks at what might happen to various investments you have against possible future financial situations. This tool looks at thousands of scenarios to calculate your risk. None predicted COVID, though. Basically, it determines the probability of success of financial strategies along with providing projections on what you’ll have to live on each year after you stop working.
60s and over: A New Mindset
Retirement produces a different mind frame. Priorities shift. People start asking questions about what they want to do with the rest of their life. Today’s reality is forcing individuals to make more serious decisions about retirement because of COVID-19. Some are discovering they can retire earlier than anticipated.
This is a time to reassess net worth. Stock markets have been volatile. Real estate has been less affected by these tumultuous times. Look at assets and liabilities. You may be able to liquidate extra assets, such as that summer – or winter – home for a sizable profit. Pay close attention to the tax consequences of such decisions.
Everyone’s had a reality check with COVID-19, but the reality is, things haven’t changed much on the financial planning front. Smart financial planning, even in the midst of a pandemic, follows principles that make sense with just about any circumstances. The best plans start with paying attention to money inflows and outflows, then making wiser decisions about spending and saving. It’s not rocket science, but it’s amazing how infrequently people consider basic precepts.
COVID-19 has been a wakeup call for many. Seeing this as an opportunity to reassess how money’s flowing, and doing something smarter about it, isn’t a bad thing.
The story above is from our November/December 2020 issue. For the full story subscribe today or view our FREE digital edition. Thank you for supporting local journalism!