This year has been a year like no other. Between the global pandemic, historically low interest rates and many struggling with losing their jobs or having their hours reduced, most of us are ready to leave 2020 behind.
LIMRA research finds the coronavirus pandemic is undermining consumers’ confidence in their short-term and long-term financial security. Twenty-nine percent say they are very or extremely concerned about their household’s short-term financial security and a third are very worried about their long-term financial security.
As we look toward 2021, here are some tips for a brighter, more financially secure new year.
- Increase Your Knowledge and Set Specific Financial Goals
Use numbers and dates, not just words, to describe what you want to accomplish with your money. How much debt do you want to pay off—and by when? How much do you want saved, and by what date? A Secure Retirement Institute® (SRI®) study finds only 12% of American adults feel very knowledgeable about financial products and investments. This means most consumers may make decisions that undermine their financial security now and in retirement.
- Start With Small Debts to Help You Conquer the Big Ones
If you have a mountain of debt, studies show paying off the little debts can give you the confidence to tackle the larger ones. LIMRA research finds 4 in 10 workers feel daily stress over their personal finances. Just a third of today’s workers have a monthly budget or a long-term financial plan and only 2 in 5 have any sort of “rainy day” or emergency fund.
- Contribute to a Retirement Plan if You Can
If your employer offers a 401(k) plan (or another type of employer-sponsored retirement savings program), you should consider contributing to it if you can afford to. One of the greatest concerns Americans have is running out of money in a retirement that is likely to last 20 to 30 years or more. Beginning to save at the start of one’s career and saving consistently throughout one’s working years can help alleviate some of the worry about having enough assets upon reaching retirement age. SRI research reveals 40% of working Baby Boomers have less than $100,000 saved for retirement — 25% have less than $25,000.
- Decide What Your Retirement Will Look Like
A recent SRI survey reveals that less than half of American workers aged 20-75 (49%) are confident they will be able to live the retirement lifestyle they want, down 6 percentage points from 2019.
Other SRI research finds pre-retirees (within two years of anticipated retirement) and retiree investors are almost evenly aligned on how they anticipate entering into retirement: 56% pf pre-retirees said they plan to stop working entirely, 17% plan to gradually reduce their hours before stopping and 27% plan to work part-time with no plan to stop working. In actuality, among recent retirees 64% stopped working all at once, 17% gradually reduced their hours and just 19% continued to work part-time.
When it comes to being ready to retire, 7 in 10 pre-retirees say they aren’t well prepared for their retirement.
- Have a Savings Plan
You've heard it before: Pay yourself first. If you wait until you've met all of your other financial obligations before seeing what's left over for saving, chances are, you'll never have a healthy savings account or investments. Resolve to set aside a minimum of 5% of your salary for savings before you start paying your bills. A SRI survey found the top financial priority for 54% of American households is to save more money. Other financial priorities include paying down debt, creating a long-term financial plan and building better spending habits. Over half (58%) of Americans don’t believe their savings and investments will last if they live to be 90 years old.
- Maximize Your Employment Benefits
Employment benefits like a 401(k) plan, flexible spending accounts, medical and dental insurance, etc., are expensive. Make sure you're maximizing yours and taking advantage of the ones that can save you money by reducing taxes or out-of-pocket expenses. LIMRA research showed that the COVID-19 pandemic heightened consumers’ sensitively to the need for insurance and related protection products. LIMRA research reveals that many employees appreciate their benefits more now than before the pandemic, and are viewing them in a new light. In fact, over half of employees (54%) view their insurance benefits as more valuable compared to before the pandemic.
- Make Sure You Have Enough Life Insurance
Only 54% of Americans own some type of life insurance. In January 2020, prior to the coronavirus pandemic, 36% of Americans who didn’t currently own life insurance said they intended to purchase it within the next 12 months. While consumers’ concerns about the need for household items like groceries, paper products and cleaning agents have diminished, more consumers report a heightened awareness of the need for life insurance. In October, 57% of consumers said they are more aware of the need for adequate life insurance coverage, up from 49% in March.
- Know What Would Happen if You Became Disabled
Paying for basic living expenses if one becomes disabled is one of the top five financial concerns consumers have, but 8 in 10 consumers don’t actually own disability insurance. Nearly half (48%) of consumers feel they need disability insurance. Indecision and lack of knowledge are cited as the top reasons why consumers don’t buy the coverage they believe they need. Seventy-five percent of employees say they would have trouble paying for basic living expenses after several months if they became disabled and were unable to work — one third of employees say they would have immediate trouble.
- Make an Emergency Fund for Real Emergencies
According to LIMRA, more than a third of U.S. workers (32%) say they only have emergency savings to cover less than one month’s expenses and half (50%) report having only enough emergency savings to cover three months’ expenses or less.
- Save on Stay-at-Home
Pandemic-related stay-at-home orders and related increases in the number of people working from home have resulted in a decrease of many expenses. For example, if you're no longer paying commuting expenses, or for meals out or for your annual overseas vacation, funnel those one-time expenses into savings.