It’s that time of year again – the time to set our New Year’s resolutions.
We have the very best of intentions when we contemplate the start of a new year, and commit ourselves to making changes. Lose weight, eat healthier, spend less time staring at “screens”, meditate, and so on.
Yet, surveys consistently show that we typically abandon our new goals in less than two weeks. And goals for our personal finances are no exception. Financial services giant Fidelity reports that about half of the people who set financial goals for 2019 didn’t meet them.
We’d like to suggest some resolutions centered around your financial life, and encourage you to adopt them.
Big Expenditures
Resolve to make big discretionary expenditures only if they’re already built into your financial plan. If you don’t have a plan, get one! Spending a large chunk of money on something that pops into your life, but for which you didn’t plan, can get you into financial trouble. Examples include large gifts to family members, time share contracts, vacation homes, sports cars, and expensive vacations with extended family.
Health Care Later in Life
If you’re fortunate, you’ll live a “long and robust” life, beyond normal life expectancy. It’s not too soon to think about your ability to care for yourself at the end of your life. Will you be able to care for yourself? If not, will your spouse or partner care for you? Do you think you’ll live as you always have, and never need any assistance? According to the Administration for Community Living, about seven in ten of us will need some type of long-term care services, either at home or in a care facility. Women typically need care for over three and a half years, and men for a little over two years. One in five of us will need care for more than five years.
If you will need care, what will it cost? Consider the following monthly costs reported by the insurance company Genworth:
You may never need care. But if you will, how will you pay for it?
Resolve to look into your need for long-term care and come up with a plan.
Your Home as an Asset
It’s helpful to think about your home as something more than the place where you live. Assuming you own your home and that you don’t have a large mortgage on it, it’s probably one of your most valuable assets. If you live a long life and find that your savings and investments won’t be sufficient, your home can represent your “safety reserve”. If you’re willing to consider accessing some of the equity in your home if necessary, a home worth $1 million could easily create several thousand dollars of income each month starting at age 85 and lasting the rest of your life.
Resolve to learn more about reverse mortgages and decide whether you should explore putting one in place.
Investment Returns
The stock market produced incredible returns in 2019. As an investor, you’re undoubtedly happy, particularly given how bad the fourth quarter of 2018 was. However, returns in the near term are likely to be much lower. At Springwater, we keep reinforcing this message, because we want our clients to be prepared if investment returns over the next 10 years are (disappointingly) low.
How can that happen? Well, we assume that stock market returns around the world will be about 5% to 7%. Bond returns will be 2% to 3%. So, if your portfolio is invested 50% in stocks and 50% in bonds, you can expect a total return of 3% to 5%.
As long as inflation remains at or below 2%, the “real” return on your portfolio will be more attractive. That’s been the case for several years and we don’t see price pressure that would suggest inflation will rise.
Resolve to maintain realistic expectations about the returns for your portfolio in 2020.
Estate Plan
Of all the components of a comprehensive financial plan, estate planning is the single most neglected one. We spend a good bit of time encouraging our clients to put an estate plan in place, or to update a plan that’s become outdated. As a reminder, an estate plan consists of a will, a durable power of attorney, a health care directive and, for some, a revocable living trust.
Resolve to have a current estate plan in place in 2020, if you don’t have one already. Plan to start and finish the process before the end of March. That gives you three months to get it done(!).
PLEASE SEE important disclosure information at www.springwaterwealth.com/blog-disclosure/.