New Year’s Resolutions: Using What We Learned From 2020 (And 1986)

The year 2020 will not soon be forgotten. For some, the market created significant new wealth. But for many folks, the year was terrible in terms of health and finances. Even so, it’s an ill wind that blows no good, so we would do well to pay attention to the year’s hard-learned lessons. Perhaps the best way to do this is to apply some new wisdom to our 2021 New Year’s resolutions.

Another year worth studying is 1986, leading up to the market crash of 1987. As you may recall, the market was good that year, although inflation was high. Inflation is known as retirement’s silent killer because it slowly erodes the value of your money over time. You almost never see it coming. You just wake up one day and realize that $20 in your pocket used to buy an entire shopping cart of groceries, but now it only buys two or three items.

We experienced all-time stock market highs in 2020, albeit without the inflation component. Will 2021 see an event comparable to 1987’s Black Monday? If so, how will it impact your wealth?

As a financial advisor in Woodbridge, CT, below, I’ve compiled a few suggestions that will help protect your wealth whatever the future brings.


Are your finances ready for 2021? Schedule a no-obligation conversation with the team at Heritage Capital, and see if you’re on the right track.


Create an Emergency Fund

Almost no one saw the pandemic coming, but folks who set aside an emergency fund were in the best position to withstand the economic upheavals. The general rule of thumb is to put enough money into your emergency fund to pay for about six months’ worth of expenses. If you have higher, more variable expenses, you might want to increase the fund size to cover a full year of expenses. Keep these funds in a liquid, insured account that you can access without delay.

I work with many clients who automatically put aside a fixed amount every payday directly to a special account. A simple savings account at a bank or credit union will do, but you might get a better return from a cash management account. The fund will not only cushion the blow if your income is cut but can also provide you emotional reassurance every day of the year.

If you’re not sure about the best way to go about creating an emergency fund or how much you specially should have on hand, the team at Heritage Capital is happy to help. Take advantage of our complimentary, no-strings-attached test drive, and get the conversation started.


Get Serious About Retirement Planning

If you were a few years from your expected retirement date in 2020, you might now find yourself retired earlier than planned. The pandemic-related shutdown caused many Americans to lose their jobs or pivot into retirement early. The lesson here is to take your retirement planning seriously, no matter your age. If you’re not sure where to start, you can reference our retirement guide here.

Your initial goal should be to make the maximum contributions to your 401(k) ($19,500 plus $6,500 catch-up contribution for workers age 50 or older) and IRA ($6,000 plus $1,000 catch-up contribution), if possible. If you’re self-employed, you can contribute up to $58,000 to your 401(k) in 2021, which is $1,000 more than the 2020 limit.

For some of you with higher incomes, these measures aren’t enough to keep your retirement plan on target. Consider taking advantage of more sophisticated retirement plans, including:

  • Deferred-compensation plans
  • Executive bonus plans
  • Group carve-out plans
  • Split-dollar life insurance plans
  • Non-qualified variable annuities
  • An individual retirement trust
  • Other trust accounts
  • Family businesses

At Heritage Capital, we work with many high net worth clients, so we created a specific guide for these individuals, which you can access here. The more money you have, the more money you can lose.

If you do have a high net worth, consider scheduling a retirement plan consultation with a financial advisor as one of your New Year’s resolutions. Optimal retirement planning is one of the keys to wealth accumulation and preservation.


Review Your Financial Plan

If you haven’t recently reviewed your financial plan, you might want to look at it in light of recent developments. Start with your risk tolerance – has it evolved over the last year? You may need to adjust your investment portfolio to bring it into better alignment with your current tolerance for risk. In the process, you may want to increase the diversity of your investments and strategies, refine and expand your asset allocations, review your tax planning and take other steps to decrease portfolio volatility.

It may also be time to update your beneficiaries, including individuals, organizations, charities, trusts and foundations. Perhaps you’ve experienced life-changing events in 2020 that may have altered your long-term goals. A new year is also a great time to update your estate plan.


Understand Your Benefits and How They Will Help You

Your retirement plan should give you a reasonably good idea of your income and expenses in your Golden Years. Make sure you know what kind of benefits to expect in retirement, such as Social Security, which can bring in more than $40,000 per year. You should also review your retirement plan distributions in light of the new starting age for Required Minimum Distributions (RMDs). This age increased from age 70-½ to age 72. You may also have other benefits coming, perhaps from an annuity, reverse mortgage or the sale of a business. The purpose here is to ensure you’re able to enjoy the lifestyle you planned without outliving your money. With 2021 right around the corner, take a fresh look at your income assumptions to ensure they are still correct and relevant.


Plan for Taxes

One lesson from 2020 is that disruption creates opportunities (and costs) that can substantially impact your tax picture. While it can be difficult to anticipate events that would increase your tax liabilities, it’s prudent to keep up with the changes to your unsheltered income.

Your resolutions for 2021 should include positioning yourself for unexpected tax bills, perhaps by creating contingencies that you can deploy to absorb capital gains or spread capital losses over an extended time span. Tax-free investments can help tame the drain of taxes upon your wealth.

Again, a financial advisor can help you with this.


Speak to a Financial Advisor

The DIY approach is laudable if you are, say, renovating your home, but it might not be such a good idea when it comes to your finances. Especially now, post-2020, as we’ve seen what can happen. By relying on a financial advisor, you can reduce the risk of making bad mistakes that permanently hurt your wealth. Just as importantly, a financial advisor can introduce you to opportunities you never previously considered; opportunities that can increase your returns and/or lower your risk. Moreover, a financial advisor can help pull together all aspects of your wealth planning, from your retirement plan contributions to the taxes you will pay later on.

For 2021, take a holistic approach to your financial plans with special attention to how to preserve your wealth in the face of unknown, and overpowering events.

If you’re currently looking for a financial advisor in the Woodbridge, CT area or are ready to make a change, contact Heritage Capital to see if we’re a good fit.



Paul Schatz, President, Heritage Capital