4 financial goals retirees should consider in 2021

After a tumultuous 2020, it may be time for retirees to reevaluate their priorities.

The coronavirus pandemic affected many retirees’ decisions around finances in 2020, whether they postponed spending money on a big overseas vacation or took on additional costs related to healthcare or looking after loved ones. 
While it’s always a good habit to review your financial goals at least once a year with a financial advisor, no matter the circumstances, the start of 2021 is an especially important time.
“You want to revisit your financial plan on an ongoing basis—in good times and bad,” says TIAA Chief Planning Strategist Dan Keady, CFP®. “But especially after the tumultuous year we’ve had.”
Keady outlines four financial goals specifically for retirees that you may want to discuss further with your financial advisor in the new year. How you’ve managed through the coronavirus pandemic may impact which ones are the highest priority.

1. Review your guaranteed income to see if adjustments are needed

For retirees, guaranteed income sources, such as Social Security benefits, provide money each month for life that is immune to market fluctuations.

Average Social Security income inches up in 2020

Social Security beneficiaries received only a 1.6% cost-of-living allowance because of relatively low inflation.
The average Social Security payment for retired workers has increased slightly every year since 2016, and was $1,503 in 2020.
Source: Social Security Administration fact sheets, 2017-2020
“If that amount looks pretty small compared to how much you’re taking out of market-based investments, it could be important to sit down with your financial advisor and talk about perhaps looking at a lifetime annuity to produce even more reliable income,” Keady says.
Annuities are insurance products that can be used to provide guaranteed income for life. A personal annuity or after-tax annuity, for example, can help you build additional retirement savings and is not subject to income rules or contribution limits like your 401(k), 403(b) or IRA.
“For retirees, you want to be in a situation where you have a good amount of guaranteed income that is going to help shelter you from market volatility,” he says.

2. Create or grow your rainy day fund

Keady notes that a lot of retirees don’t believe they need a rainy day fund, also often called an emergency fund. But that could be a mistake.
“The emergency fund becomes the ability to fund yourself in case of what we often call an asset emergency,” he says. “In other words, if investment values are down, you’re better off if you’re able to withdraw money from that emergency fund.”
The problem is many retirees don’t think about that because they’re focused on the low rate of return that you get from savings accounts or other locations where you may keep your rainy day fund. “But that cash that they have in an emergency fund is also a hedge,” he says. “It’s a hedge against market volatility. You’re not making money. But you’re not losing money either.”

3. Look over your estate and legacy planning goals

Any financial adjustments that you’ve made related to the coronavirus pandemic, as well as any health concerns you have, may necessitate a shift in how you’re prioritizing your financial goals, including bringing estate planning to the forefront. This may be important at a time when the overall percentage of people with estate plans had declined prior to the pandemic.
“We’re in an environment where people probably are thinking, more than ever, about not just their legacy, but the footprint that they’re leaving during their time on Earth,” Keady notes.

Estate planning preparation had decreased prior to the pandemic

Prior to the COVID-19 pandemic, only 32% of Americans had a will or other type of estate plan, down from 42% in 2017.
Source: Caring.com, 2020
To start, make sure your documents such as your will are updated so they reflect your current situation and desires. “It’s sitting down and envisioning if you weren’t here, what you want for your loved ones,” he adds. “Or how you want to benefit the charity you care about. This so-called life planning is a really important part of reviewing your financial goals in the new year.”
 
Along with your formal plans, that could also take the form of a letter, a video, or both. “It’s important to do a bit of soul searching first to make sure you’re able to articulate what’s important,” Keady says. “It’s not a legal document, but it lets people know how you feel, how you want things to be handled.”
 
Keady adds that your financial plan and your estate plan should be connected and supportive of what’s important to you now and after you’re gone as well.
 

4. Discuss your RMD strategy with a financial advisor

Most types of tax-deferred retirement accounts, such as 403(b) and 401(k) plans and IRAs, require you to begin withdrawing money each year, which is known as a required minimum distribution, or RMD, once you turn 72 (this date changed from 70½ as a result of the SECURE Act).
 
The CARES Act in 2020, in an attempt to help provide relief for retirees, allowed individuals to cancel their 2020 RMDs. It’s unclear what may happen in 2021. But even if you don’t have to take an RMD, that doesn’t mean you shouldn’t, Keady said.
 
“The question is, am I better off perhaps taking a little bit out, even if I don’t have to take RMD, to prevent potentially higher taxes down the road,” Keady says, adding that investors should also work closely with their tax advisor. “And that’s hard to answer without sitting down with your financial advisor and thinking this through.”
 
With 2020 creating significant upheaval not only in the financial markets but also in people’s personal situations, reaching out to your financial advisor to discuss these four topics at the start of the new year may help you feel more confident that you’re on track for what will hopefully be a calmer 2021.

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The TIAA group of companies does not provide legal or tax advice. Please consult your legal or tax advisor.
This material is for informational or educational purposes only and does not constitute fiduciary investment advice under ERISA, a securities recommendation under all securities laws, or an insurance product recommendation under state insurance laws or regulations. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on the investor’s own objectives and circumstances.
Advisory services are provided by Advice & Planning Services, a division of TIAA-CREF Individual & Institutional Services, LLC, a registered investment adviser.
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