The year 2020 has been quite a year! Everyone has probably heard this said too many times already.
As I look back on the years, I can remember the significant things I have seen and/or witnessed that have been either beneficial or detrimental. The circumstances we encounter during our lifetime always call for some level of change in the decisions we have previously made.
The Covid-19 Pandemic of 2020 could very well be an opportunity to rethink our retirement planning. Many people have discovered that things they “thought” they couldn’t do without have discovered that they could get along fine without.
LET’S DO A LITTLE RETHINKING ABOUT RETIREMENT PLANNING:
Buying a home: The first home purchased is probably dictated by what you can really afford. You would like to have a larger home but that can wait on the results of your future growth in income. The longer you live in that first home may result in greater growth in your retirement savings. How can this be true? Each time you buy a new and larger home you acquire more debt and interest, property taxes increase, homeowners insurance increase, and maintenance costs increase. I am not against investing in real estate! Over 30 years the investment in your home or homes will increase substantially. Don’t assume that is all profit. There is an accumulation of interest paid, real estate taxes paid, insurance, and repairs that must be subtracted from that increase in value.
Now, let’s assume that as the years go by you purchase larger and more expensive homes. You will have more value after 30 or 40 years, but those same costs will have increased.
Retirement planning must consider current “needs and wants” and future “retirement needs and wants.” By continuously living to the level of your needs, the additional costs of you “wants” can be invested in retirement savings.
Mortgages (debt) are like negative bonds. What would be the effect of taking part of you “wants” spending and paying against your mortgage principal? Paying off debt almost always garners a higher after-tax return than you can earn by investing in high-quality bonds. So, you would really be surprised the cost savings of paying off a mortgage early…what a source of retirement savings to help you retire and remain retired.
Investing in the market: What does watching the market and your portfolio accomplish? Mostly nothing. It does not improve performance. As far as investing in short-term investments, most people don’t know squat. One of the downsides of following the financial news is that you hear all kinds of smart, articulate experts offering eloquent predictions of plummeting share prices and skyrocketing interest rates that turn out to be hopelessly, paghetically wrong.
2020 HAS CAUSED US TO MAKE ADJUSTMENTS IN OUR DAILY LIVING:
When this year began, we could never imagine the adjustments and decisions we would be forced to make as the months passed.