• An itemized list of things you should do (or review) in order of priority
  • Appropriate for couples or individuals in their 30s up to retirement age

Estimated read time: 4 mins

A global pandemic certainly puts life into perspective doesn’t it? If anything, COVID-19 has reminded us about what we value most━our health and our loved ones. While 2021 has given us new hope, especially with a nationwide vaccination rollout, the unprecedented experience of 2020 provided several important reminders when it comes to managing one’s finances. Here, I’ll cover what we at Lincoln Capital view as the six most important factors to consider or reconsider in the months ahead.

#1: Budget From A Long-Term Financial Plan

First and foremost, you should establish (or update) your monthly budget as part of a long-term financial plan (see #3: Set Aside A Portion for Retirement). Used correctly, the budgeting process helps to minimize expenses and maximize funds for your immediate, near-term and long-term priorities.

Establishing/updating a budget is a crucial exercise. It’s much harder to meet your financial goals without first being aware of your income and expenses. Awareness is key. After this, success depends on being disciplined enough to stick to your budget.

#2: Grow Your Cash Emergency Fund

The amount of “rainy day” money you set aside should be specific to your circumstances. That said, a general guideline is to have between 6 to 9 months’ worth of expenses at the ready and up to 12 months of funds available for those in or near retirement.

We realize these goals are very challenging for many people. Most Americans are managing credit card debt and student loans on top of living expenses, so having surplus cash can fall lowest on the priority list. But the most important thing is to conscientiously set aside some money each month for this purpose.

Having a fund that covers 1, 2 or 3 months’ worth of expenses is better than having nothing at all. You’ll be thanking yourself down the road should you have to face a job loss or large unforeseen expense (e.g. furnace replacement, medical expenses, etc.).

#3: Set Aside A Portion for Retirement

After budgeting for immediate and near-term expenses, and your emergency savings account is replenished, it’s now time to address your long-term needs and determine how much you contribute to a retirement plan. We can’t stress enough how important it is to grow your retirement funds while you’re working; last year’s surge in job losses and early retirements will leave many Americans with a smaller nest egg than anticipated.

So how much should you save for retirement? The honest answer depends on several variables that are specific to your individual circumstances. For example, our certified financial planners help clients “find their number” after evaluating their current and estimated income and expenses; assets and liabilities; tax considerations; financial goals (e.g. kids’ college tuition savings, generational wealth transfer, etc.); how comfortably they want to live in retirement; and other factors.

The most important thing is to take the first step and to meet with a professional. You’ll never truly know if you’re saving enough right now until you determine how much you need overall.

Also, for those facing significant debt and who may be struggling to save for retirement, here are some reminders and things to consider:

  • Retirement plan contributions can reduce your current taxes
  • Your employer may offer some type of retirement savings match, so take advantage of this to amplify your savings
  • Consider refinancing those loans.  Interest rates have been at historic lows.  Whether it’s a student loan or mortgage, refinancing could potentially save you hundreds of dollars a month.  The extra savings can then be used to fund that retirement account.

Conversely, credit card debt should take precedence over retirement savings because credit card interest rates typically far exceed the average return of the market. If you have to choose, focus on addressing this burden as quickly as you can

#4: Review Your Health and Life Insurance Plans

As the number of deaths and hospitalizations continue to rise in the U.S. due to COVID-19, it is vitally important that health and life insurance needs are reviewed.

More specifically, do you have sufficient coverage for an extended hospital stay requiring life sustaining measures? Is your life insurance payout enough to cover future expenses for your loved ones should something happen?

#5: Develop / Update Estate Planning Documents

“Since April 2020, we’ve handled 22 estates for individuals that died due to COVID-19,” says Nicholas A. Lambros, Esq., an estate planning attorney based in Cranston. “The ages of these individuals ranged from 60 to 90 and most died within two weeks of testing positive. Fortunately, most had their legal affairs in order, but some did not and we were unable to do so due to their rapidly deteriorating health.”

COVID has made it clear that everyone should be prepared. So where does one begin? “First, all adults should have basic incapacity documents in place, such as healthcare proxies and financial powers of attorney,” added Lambros. “Additionally, they should have a Last Will and Testament and, in most cases, a trust.”

Unsure about the difference between a will and a trust? All the more reason to speak with a professional. Even those with an existing estate plan should review it again to ensure their plan still reflects their wishes.

#6: Rebalance Your Portfolio Asset Allocation

Lastly, it is recommended that your portfolio asset allocation be revisited and, to derive benefits from portfolio rebalancing, it is important to stick to a strict schedule in a disciplined manner.

The last three years show the importance of adhering to one’s asset allocation. After negative equity returns in 2018, the following year (2019) was the 10th best year in the 93-year history of the S&P 500 Index. This strength carried into the first seven weeks of 2020, as stock indices reached record levels into late February. As the scope of the pandemic became more evident, stock prices then declined over 30% in the next month, before ending the year with double-digit returns. The point: It is vital that investors are comfortable with their allocation and avoid reacting emotionally (with fear) during periods of market turmoil.

For our clients, know that we are available for all your 2021 financial planning needs and, as always, please contact us if we may be of assistance in any manner.

About the Author

Alex Albert is a Certified Financial Planner for East Greenwich-based Lincoln Capital, a financial planning and wealth management firm. He is a graduate of the University of Rhode Island and earned CFP® certification from Bryant University. 

DISCLOSURES – This presentation is not an offer or a solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be dependable; however, its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. This presentation may not be construed as investment advice and does not give investment recommendations. Any opinion included in this report constitutes the judgment of Lincoln Capital Corporation as of the date of this report and are subject to change without notice. Additional information, including management fees and expenses, is provided on Lincoln Capital Corporation’s Form ADV Part 2. As with any investment strategy, there is potential for profit as well as the possibility of loss. Lincoln Capital Corporation does not guarantee any minimum level of investment performance or the success of any portfolio or investment strategy. All investments involve risk (the amount of which may vary significantly) and investment recommendations will not always be profitable. The investment return and principal value of an investment will fluctuate so that an investor’s portfolio may be worth more or less than its original cost at any given time. The underlying holdings of any presented portfolio are not federally or FDIC-insured and are not deposits or obligations of, or guaranteed by, any financial institution. Past performance is not a guarantee of future results. Lincoln Capital Corporation prepared presentation, 401.454.3040, www.lincolncapitalcorp.com Copyright © 2023, by Lincoln Capital Corporation.