Many say good riddance to 2020, a year marred by a health crisis-turned economic crisis. A ton of effort – fiscal support, dedication by front-line workers, the ingenuity of high-efficacy vaccines coming at warp speed, and true grit – have helped people survive the impacts of the pandemic. The light at the end of the tunnel shines brighter. As for 2021, get a head start by planning considerations you can (and should) review with your family and trusted advisors.
There are reasons why the stock markets post new highs, and why some wonder if the markets have gotten ahead of themselves. Looking ahead, key big picture views include:
- Long and sturdy global growth. Goldman Sachs’ forecasts of real GDP growth for 2021 are Global 6.1%, U.S. 5%, Developed Markets 5.1%, and Emerging Markets 6.9%.
- Recovery is uneven. The impacts of vaccines will be non-linear as countries respond differently to the distribution and benefits of the vaccine. And for many countries, full recovery is dependent on the service sectors which will take time to normalize.
- The U.S. election and divided government (depending on the outcome of Georgia elections) may limit the size of fiscal stimulus, tax and regulatory changes.
- The list of known risks includes COVID-19, vaccine development and rollout, election impacts, and deglobalization.
Jeffrey Kleintop, Chief Global Investment Strategist of Charles Schwab, reminds us that often the biggest risks are not the ones out of left field (unlike the COVID-19 breakout), but the ones hidden in plain sight. Quoting Mark Twain, “It ain’t what you know that gets you in trouble, it’s what you know for sure that just ain’t so.” Humbleness, doing your homework, seeking advice, diversification, and having a plan can serve you well.
Here are some actionable items that can help you keep your financial house in order:
Continue financial habits from 2020
Americans adjusted due to COVID-19 whether by choice or for survival, including setting a budget, spending less, saving more, stretching cash reserves and upping financial knowledge, to name a few. These are good things that can be contagious among your family members and friends.
Adjust your Thrift Savings Plan (TSP)
TSP provides a chunk for most retirees – often 30 to 50% of retirement income. It’s a retirement plan for Federal employees and uniformed service members. And it’s similar to 401(k) plans so these tips are applicable to those of you in the private sector. Many participants have become TSP millionaires because of the following:
- Long-term consistent savings plan benefiting from of the double-barreled powers of tax-deferred compounding.
- Forced savings via payroll deduction. Most are auto-enrolled at 5% of pay and money is saved before you have a chance to spend it.
- Diversify and customize the investment strategies according to your retirement needs. There are five U.S. and international funds, a bond fund and a Treasury Securities fund. For convenience, there are also ten lifestyle funds which are mixes of the five core funds. You might consider broadening your global equity exposure, go smaller in market caps, diversifying bond investments per the macro trends above.
- Choose between pre-tax and after-tax (Roth) contributions based on your situation, retirement plans and outlooks.
$900 Billion Pandemic Relief Bill
House and Senate leaders recently agreed to another coronavirus relief bill. Provisions may be beneficial to you. Here’s a brief summary:
- 11-week extension of unemployment benefits ($120 billion)
- Stimulus checks of $600 per person with similar income thresholds as before ($166 billion)
- Employee-side payroll tax deferral deadline extended to 12/31/21
- Renewed funding of $284 billion for first and second forgivable Paycheck Protection Program loans with expanded eligibility for non-profits
- Additional $20 billion for new EIDL grants and $43.5 billion for SBA debt relief payments
- Tax breaks including tax credits, charitable deductions, education benefits, and more
- Other educational, medical, nutrition and transit relief ($233 billion)
We hope your personal and financial health remain top priorities as you set your goals for 2021. May your list of worries be shorter than your New Year’s resolutions, you grow from adversity and you secure your future wisely.