It’s the time of year we reflect on the past, and plan for the year ahead. Setting resolutions (whether we end up keeping them or not) is a ritual many of us take on with the hopes of stopping a bad habit, hitting the gym more, or sticking to those diets. But what about resolving to save more, pay down debt or put more aside for retirement?
Perhaps not surprisingly, these financial resolutions are not as popular as the health and wellness ones. In fact, according to the Allianz 2019 New Year’s Resolutions Study*, only 14% of people are including financial planning as a resolution in 2020, a figure that is down from 18% last year.
And while resolving to exercise more or eat better are great goals that can help you live a healthier and potentially longer life, the skeptic in me wonders how you’re planning to pay for that longer life.
By setting financial goals and resolutions now, you can help mitigate some of those risks that longevity can pose to retirement, like outliving your money, not being able to cover the health care costs that come with aging, or needing to pay for long-term care. Here are three financial resolutions to make now to help set yourself up for success for a long and comfortable retirement.
Contribute to a Health Savings Account
In the study, we asked about what consumers saw as the top risks to their retirement plans in 2020, and we found that rising health care costs were a top concern among Americans. Yet, when asked about ways to reduce those risks, only 8% said they could put more money into a fund, like a health savings account (HSA), to pay for those costs.
It’s practically inevitable that as we age our medical expenses will increase. If you’re on a high-deductible health plan, you can contribute to your HSA now, and help prepare for this big budget item down the road because, unlike a flexible spending account, the balance can be carried over from year to year. Another big bonus is that money is not taxed when it goes in, nor are any gains while it is invested in the account, and it’s not taxed when any amount is withdrawn as long as the funds are used for qualified medical expenses.
Use the start of the new year to revisit potential medical expenses and determine if you need to boost the amount you contribute to your HSA, particularly if you are getting closer to retirement. The maximum contributions for 2020 are $3,550 for an individual and $7,100 for a family. For any individual 55 and older, you can contribute an extra $1,000.
Lastly, try to avoid using HSA funds while you are still employed. Allowing the account to grow while you are working may cover future necessary medical expenses while avoiding, not only increased taxes, but also possibly increased premiums for parts of Medicare.
Boost retirement savings
While this may seem like a painfully obvious way to help reduce risks that longevity can pose to retirement, surprisingly few people in the study cited retirement-specific savings strategies as a way to mitigate retirement risks. Only 9% said they planned to increase contributions to a work-sponsored retirement plan, like a 401(k) or 403(b), and just 12% said they would put money away for retirement outside of their work-sponsored plan as key ways to reduce risks to retirement.
Instead, the most popular response to this question was to downsize current spending. While it might be easy to focus on what’s in front of you right now, like cutting monthly spending where you can, be sure you’re taking those savings and putting them to work for your retirement — whether that’s adding to your current retirement savings plans or exploring various retirement protection products, like an annuity.
See Also: 5 Things Affluent Retirees Should Do Now that the SECURE Act Has Passed
Create a formal retirement income strategy
Retirement income planning should be a crucial part of every financial strategy, but just 8% of people in the study said creating a plan for how they will spend their savings in retirement could help reduce their retirement risk.
Working with a financial professional, you can discuss the knowns and unknowns that may impact your income in retirement. Things like market volatility, the rising cost of living, and the fact that people are generally living longer and thus spending more time in retirement than ever before (think 25 to 30 years more!) will all impact how much money you will need to live comfortably in retirement.
Having a formal, written strategy can help mitigate some of these risks that may impact your retirement. One of the most important things you can do to help make sure you have a blissful retirement is to plan ahead on how to pay for it, so you don’t have to spend your time worrying about money.
Making meaningful resolutions
Whatever your resolutions for the new year end up being, you’re hopefully taking steps to better yourself. If you do plan to focus on health and wellness in 2020, don’t forget about your financial fitness. They really do go hand in hand, so it’s important to not leave one behind.
By taking little steps now, you’ll enjoy 2020 and beyond, confident that you’re ready to tackle any financial challenges and risks to your hard-earned retirement.
(Article written by Kelly LaVigne)