Time to Tackle “Adult” Stuff

There are 2 times in my life where I realized I was really an adult: 1) when my kids vomited on me and I was more worried about them than myself, and 2) when I proactively looked for life and long-term care insurance.  

Jump to #2.  In my experience, whether one deals well with insurance, taxes, investments, etc. is often dependent on how one’s family of origin dealt with it. These “adult” responsibilities are not fun or particularly interesting but are vital to having a safe and sustainable life. I am so thankful that my father impressed on me the need to never go even one minute without health insurance. My parents also modeled for me how to be responsible about insurance and investments. I am thankful that I listened to them and maxed out my 401k since beginning my government job. The time value of money invested over thirty years has enabled me to become one of the 401k millionaires. It was actually relatively painless — I didn’t notice these missing funds as they were automatically withdrawn from my paycheck.

Since we’re in the month before tax day, I thought this would be an appropriate time to raise these issues. People rarely talk with their peers about these responsibilities. If you don’t have someone in your life talking about this stuff, this is my effort to fill this void. For some, this list is a given and nothing new, but I hope that it serves others that are confused and/or ignoring these vital actions.

Here are my top set of considerations you should be evaluating now:

1) Funding your Retirement: if you have a dollar match for your 401k/403b retirement plan at work, make sure to at least meet the maximum match. So, if your company will match up to 5% of your salary, you must put in at least 5% to get the full match. I would go further and highly recommend doing the maximum (currently $19,500, with the option for an additional $6,500 catch-up contribution for those over 50). You will thank yourself when you start seriously thinking about retirement. Make this automatic so your spending will focus on your net income.

Note on Roth Accounts: If you can manage putting your investments in a Roth IRA account – meaning you pay the taxes going in – I think it’s always worth it. Be mindful, however, of not inadvertently putting yourself into the next, higher tax bracket. A Roth allows investments to continue to grow, without having to worry about a tax bite when you take it out.  Also, in case you care to leave money to your heirs, changes in the recent tax law could wreak havoc on them, since the new requirement is that Required Minimum Distributions (RMD) must be taken over ten years rather than a much longer timeframe. This means that your heirs could face a huge tax bill in each of those ten years. A Roth is not subject to this RMD restrictions. Again, to take advantage of a Roth, you must have the cash to pay the tax in the current tax year, so that’s a huge consideration. The younger you are, the more a Roth provides a significant benefit, allowing time to do its thing.

2) Taxable Investments:  If at all possible, have taxable investments outside of your retirement account, with a minimum amount to cover emergency expenses if you lose your job or encounter another emergency. This is also an important source of funds for prized vacations, household improvements or spending money prior to or in retirement. Taking the long view on this will pay off, I promise. Make sure to invest funds beyond your emergency stash, and not just keep them in cash until you have time to deal with it. Compounding interest and dividends over time makes a big difference!

3) Life Insurance: Figuring this out is a daunting, largely unpleasurable experience. But if you own something that you cannot afford on your salary alone and/or have kids, you must have life insurance. I realized the need for term life insurance when my husband and I bought a home whose mortgage I could not have covered if something happened to him and his salary! Just swallow and take the time to learn about insurance and make good decisions. Be careful about who you use to get the insurance, as many insurance brokers have a disincentive to put your interests first. If possible, get term insurance that will make it until your kids are out of college. This is not always possible if there are health issues. Interestingly, if you do a good job with investments, etc., you likely will not need insurance once the 20 or 30-year term of the insurance expires, because your investments should be enough to cover you. I recommend getting a lot more than you think is needed to ride the inflation that will occur over the life of the insurance.

4) Creating a will if you have kids or property.  This is a bit of an expense but is key to ensuring that your kids and your property are protected in case you or your spouse/partner die, especially earlier than expected. While I dreaded doing it and paying for it, the process had the unexpectedly positive benefit of getting my husband and I talking about what mattered to each of us.    

5) Long-term Care insurance: This is the activity where I realized I truly was an adult and had to face what I would do if my spouse or I were infirm, and how we would pay for it.  Again, take the time to learn about this from neutral sources (the US Government puts out really valuable information – see below) and make the investment if it makes sense.

6) 529 college investments:  I am so grateful that we started making monthly investments as soon as each of my kids got their social security numbers, when they were less than a year old. Time value of money really added up, leading my kids to have enough money in their 529 accounts to fund their (public!) college education. It helped A LOT that grandparents invested in each kid’s account for every birthday and Hanukkah. I could not have retired when I did without this financial certainty.

7) Fun money:  It is critical that each partner have the flexibility to spend on things they value, within reason. Not having to negotiate every transaction is key to a healthy partnership/marriage.   

8) Reflecting regularly on where you are re: your wealth: Discuss with your spouse/partner at least once a year. I actually enjoy this process but know it’s unpleasant for most people. Just do it.

9) Putting everything in one place:  I’m still working on this one, but co-locating vital information (account information; passwords, wills, safety deposit access information, etc.) in one place is the best present we can provide to our survivors. I promise to get this done before my next blog. My version of accountability!

It helps so much to find neutral, objective advice before jumping into any of these.  Before I got a financial planner, I had a Morningstar membership (around $150/year).  It helped me understand a lot of financial concepts, kept track of my investments, and allowed me to research new investments – without the conflict of interest that investment houses like Fidelity, Vanguard or T. Rowe Price inevitably have.  On insurance, I like government pamphlets, especially related to long-term care insurance (such as https://longtermcare.acl.gov/ ). 

Finally, I wish we were all more open with our friends about this. Not to generalize, but I feel that men are better at this than women, at least about talking about investments. Ladies, let’s start having these conversations with our friends and family.

What a Year It’s Been

A year ago this week is when covid-19 really hit home. Both of my college students had to start full virtual classes, and could not return to their universities.  For my son, we went through the craziness of finding him a flight home from his study abroad program in Scotland.  We realized my husband, who recently had major surgery and was now on immunosuppressant medication, was now at very high risk.  He’s barely left the house since, except for walks and periodic blood tests. We had just had our last indoor restaurant experience, celebrating my daughter’s birthday.  Our lives, like everyone’s, went full virtual.

We’ve nearly made it folks – just a few more months to go, hopefully! What’s on your list – for both things you need to tackle, and your post-covid wish list??

Recommended listens:

Informative interview from NPR’s Market Place hosts Kai Rissdal and Molly Wood and New School labor economist Teresa Ghilarducci on the (not so great) state of retirement plans (as of December 2020, when this episode was recorded). 

NPR/KERA’s Think podcast episode on How To Become More Open-Minded – how sometimes growth comes through unlearning ideas we’ve always thought to be true.