Investing for the Future: 6 Life Events You Should be Prepared For
The deep economic shock and uncertainty surrounding the coronavirus has made everyone rethink their finances and investments, making it clear that financial security is more important than ever to our overall well-being. While it’s almost impossible to plan for a global pandemic, you should still have an investment strategy that grows with you throughout different life stages. From getting married and buying a home to advancing your career and ultimately retiring, we explore critical life events, explaining how your financial goals should adjust to these milestones.
Starting a Job
When starting a job, it’s also the time to begin saving for retirement. Find out if your employer offers a 401(k) or 403(b) or similar retirement accounts. You can contribute a percentage of your paycheck to the account, and your employer may also offer to match your contributions up to a certain percentage, essentially doubling your retirement savings.
If your employer doesn’t offer a retirement account, you can still save money for retirement by setting up an individual retirement account (IRA). There are two main types: a traditional pre-tax IRA and a post-tax Roth IRA.
Getting Married
Getting married is a monumental occasion that will likely reshape your finances. Couples should update critical documents, including wills, estate planning, power of attorney and beneficiary designations, to ensure they reflect the correct distribution of your assets to your spouse. Importantly, “the beneficiaries named on accounts take precedence over instructions given in other estate planning documents so they can be a key piece of your estate plan,” according to Fidelity.
Furthermore, couples should also compare their workplace benefits and health insurance to see what fits best. Newlyweds will also need to decide on joint or separate bank accounts.
Advancing Your Career
As you take steps to advance your career, be sure to negotiate your salary when switching jobs. If necessary, sign up for benefits. If you established a retirement savings account at your previous employer, make sure to take your 401(k) or 403(b) funds with you, rolling it over to an account with your new employer or transferring it to an IRA.
Buying a Home
Purchasing a home is an exciting, yet stressful time. Staying within your financial means is the key to your long-term financial health. Once you determine your parameters, you can look for a mortgage that will best suit your needs.
Mortgages are comprised of two major components, the principal and the interest on the principal. However, there are six main types of mortgages: conventional, conforming, non-conforming, Federal Housing Administration–insured, U.S. Department of Veterans Affairs–insured, and U.S. Department of Agriculture–insured, according to Investopedia.
Having Children
Nothing changes one’s life more than having a child. Having kids is expensive and parents should prepare by taking action on a couple of fronts. New parents will need to establish a new household budget, update insurance policies, revise wills and begin saving for college with a 529 account. Parents should also explore whether their company offers a Dependent Care Flexible Savings Account (FSA), a pre-tax savings account that can be used for childcare, school and after-school programs.
Retirement
Preparing for retirement should begin years beforehand. It is essential to get your finances in order to ensure you have enough money to support your lifestyle.
As you transition to retirement, consider your healthcare options, including dental, vision, long-term care as well as Medicare. Figure out what do to with your workplace savings plans, such as rolling over into an IRA or cashing out. Analyze your risk tolerance, determine when to collect Social Security and make any necessary changes to your debt structure, from refinancing your mortgage to purchasing a new car.
Fidelity suggests that retirees think of their income sources in two broad categories: “those that may pay a predictable amount and those that may not. Plan to use income from possible guaranteed sources like Social Security, annuities, or pensions to cover essential living expenses in retirement.”
When navigating these significant milestones, being prepared is your best advantage. By following these steps to bolster your financial security, you will be ready to nimbly adjust to life’s curveballs.
Other Topics
Retirement Financial Advisors Smart Investing