Happy New Year!
This always is a time of reflection and investors should not be in any different. As we all saw in December, the market won’t always be in our favor. The stock market and interest rates are items an investor cannot influence. So, let’s focus on actions that are within our control for 2019.
If you are a saver (retirement, college, emergency funds, other) how much did you save last year? Is it more than 2017? Will 2019 be even more? As a simple rule of thumb, you should try to save 10% of your salary toward retirement. I tell clients that should be before taxes and not after to make the math simpler. If you are saving for other items that goes on top of the 10%. When you have the total savings divide the amount by your total income. If you are below 10%, try to get there for next year, 10-20% on target, and over 20% you are a star performer! See if you can increase that percent for 2019.
Another opportunity you have is to increase the amount that you contribute to your retirement accounts especially if you are turning 50 this year. The contribution limits all went up for 2019…..Individual Retirement Accounts (and ROTHs) moved up to $6,000 from $5,500 with the $1,000 catch up for workers over 50. 401(k) or similar retirement plans also moved up to $19,000 from $18,500 while the catch-up contribution remains at $6,000. SIMPLE IRA’s moved up to $13,000 from $12,500 with a $3,000 catch-up limit. Health Savings Accounts had a modest increase in $3,500 for individuals and $7,000 for family coverage.
Now on the opposite situation, if you are withdrawing money from your retirement accounts, how did 2018 compare to 2017? Do you have a budget for 2019? Making sure your retirement funds will last into your 90’s is important for investors. You also should make sure you are withdrawing funds from the right accounts to be tax efficient. You must take the required minimum distributions (RMD) from your pre-tax retirement account if you are over 70 ½ , but if you need additional funds then understand if those funds should come from a taxable account or a ROTH account is important.
Investors can control is how much risk (also known as equities) they have in the stock market. What was your investor sentiment during December? Did you check your account on a daily basis as the market moved lower and lower? Ready to go to all cash? How did you feel the day after Christmas with a 1,000 point rise in the Dow? If you were losing sleep in December, you may need to increase the amount of bonds or less risky investments in your portfolio. However, more important you need to know how long your investment time horizon is. If your investments need to last longer than ten years, then having a portion in the stock market for growth makes sense. Bill discussed asset allocation last week in his column…….
On the opposite side of the balance sheet, how did you control your debt in 2018? Mortgage payments, credit cards, car loans, student loans can all take cash that could be going toward meeting your investment goals. Always have a plan to reduce your debt and keep it in control.
So, going into 2019, do not fixate on the ups and downs of the market. Instead have an understanding of your cash flows and your investment mix to achieve your financial goals. If you need any assistance with that, let us know.
Troy Brockmeier is a fee-only financial planner and investment advisor. Oldfather Financial Services is an SEC Registered Investment Advisor based in Kearney, NE . Email to troy@oldfatherfinancial.com