NOTE: Hi All – Just wanted to address my ~7 week absence. I’ve been writing about 1 article per week since I start this blog in March 2019 so my absence was noteworthy.
My youngest graduated from college so I’ve spent time helping her get that first job (successfully). And COVID-19 has got both me and my oldest daughter rethinking our personal financial plans/goals which we’ll address in this article. Plus, after writing my last article on the Master Stock List Revisited, I’ve changed my portfolio approach even more. This will be addressed in the next article and I’m sure you won’t want to miss it.
Bottom Line: Lots of thinking about “the plan” and how to continue evolving it to best fit goals.
And Let’s Begin …
If there is one thing I know about retirement planning it’s that your plan will change. And there is no perfect plan. The plan you create is the plan for you at that moment. But change will come your way in the form of marriage, pandemic, kids, job loss, disability, financial windfalls, and luck. I do think that a solid plan should be foundational and just needs tweaking over time. If you are completely overhauling your plan it probably wasn’t solid enough anyway.
And it doesn’t matter if you are 25 (my oldest) or 57 (me). The change comes from how you are reacting to events around you plus your personal goals. For example, my oldest kid has been doing great saving for retirement. I wrote about her first $50,000 last year and today she stands at over $65,000.
But the COVID-19 pandemic has changed some of her thinking. She lives in a small apartment and “the walls are closing in” on her. She’s getting an itchy trigger finger on buying her first house. She’s only got about $15,000 in cash and she’d like to up that amount for a down payment.
“They always say time changes things, but you actually have to change them yourself.”
Andy Warhol
So we devised a plan to reduce her aftertax Roth 401(k) contributions. She currently contributes 7% into the regular before tax 401(k) and 15% to her aftertax Roth 401(k). She decided to reduce her 15% Roth 401(k) contribution to 5%. This would allow her to increase her house down payment cash by about $7,800 per year.
For the next 2-3 years, she’ll still be saving but at a reduced amount. And I think this is perfectly acceptable. She had a plan, things changed, and so she’s editing her plan. That’s her choice and it’s a perfectly acceptable plan. She knows that she’ll get her Roth 401(k) contributions back up to good level but she’d like to get a modest sized home. We are looking to keep her future mortgage payment at 25% or lower of her base salary.
You Should Change Your Plan
Like my oldest daughter, I’m pivoting my plan too. With 40 million unemployed and virus cases still rising, playing offense and defense is necessary. When in normal circumstances, increased savings and investing in stocks is my usual offensive playbook. But being flexible to opportunities, constantly changing information, and current events (including yours) is critical.
Since I got a late start to planning my retirement, offense has been the core of my playbook. Increasing my saving rate, building a stock portfolio in my taxable account, and continuing to max-out my 401(k).
“You can’t go back and change the beginning, but you can start where your are and change the ending.”
C.S. Lewis
But now things might be changing. For starters, it’s become harder to find fairly valued stocks since the market bottomed in late-March. Also, and this is a big one, I might have to move to our corporate headquarters for four of my last five years of work.
I’m assuming I’ll have to move so we would like to accelerate our mortgage payoff even quicker. We’d like to keep our current home so we don’t want a mortgage payment plus a rent pay in the new city. We are looking to decrease our saving rate and put the extra funds toward the mortgage so it’s paid off by December 2021.
If we can do this, the mortgage will be gone and we’ll be able to increase our saving rate at a super 60%+ rate for the last four years. To make this happen, I’m taking half of my regular Vanguard taxable contributions and putting them into the mortgage. And assuming I get a bonus next year plus redirecting saving contributions should have the mortgage paid by the end of 2021.
I like the plan, it keeps me saving (though at a smaller rate), and I’m keeping my expenses under control if I do have to move next year. Being fluid and adaptable with your plan is critical. My end goal hasn’t change – still retiring at 62 and still hope to have $1.3M in my portfolio to go with a pension and social security.
Summary
Your goals combined with a defined approach to achieve those goals is what makes up your plan. Goals can change and your approach can change. I’d like to think my approach has just become more refined versus changing all that much.
You have no choice but to change your plan. If you are in your 50’s then you can’t be operating on your 1980’s plan. Too many things have changed and it’s made much of your plan potentially obsolete. The concepts of the old plan might be fine but how (approach) and the sequence you action your plan are tired. Roth IRAs, ETFs, and other tools have required everyone to keep current to make sure your goals are met. It’s just a prudent thing to do.
Personal finance is a journey (a marathon) and you need to keep moving forward. As long as you stick with the basics and stay the course with occasional tweaks or refinements you do just fine. And when I say basics, I mean:
- Protect your capital
- Invest early and often
- Stay diversified
- Continue increasing your saving rate
- Keep costs low and minimize tax impacts
- Don’t trade … be an investor
- Manage risk (not too much or too little)
- Have a cash cushion for short/long-term emergencies
Thanks for reading!
Mr. TLR