What Financial Lessons Will You Put to Use in the 2020s?

Aggressive Millennial Saver

Twenty-seven-year-old Kamal Sohal puts a priority on saving.

I’m fortunate to have a job that pays well. I try to save $30,000-$40,000 a year, partly because of what I witnessed during the Great Recession when many of my friends’ parents struggled to make ends meet. My parents, who are legal immigrants, always worked labor jobs and they felt the impact. Fewer hours led to fewer goods and services for our household.

I fear that another event like the Great Recession could render more people helpless, especially as more companies automate many administrative tasks. The impact will be felt at all income levels.

Digging Out from Divorce

Jen Khoury, 37, encourages anyone entering a relationship to take an active role in financial decisions.

The lesson I learned from my divorce is the importance of being financially aware and independent before you tie your future to someone else’s. In my case, I was living in a new country without any knowledge of how the financial system worked, so I took a passive role in marital finances.

A divorce can be traumatic without any financial strain. If you don’t have a security net, you can’t hire lawyers, you put basic living expenses on credit cards, it is hard to find someplace to live, and you’re dependent on the job market to feed your kids. Looking back, I wish I had put away even $5 a month.

How am I approaching the next decade? Every night I read about personal finances and try to tailor the information to my situation. I use apps to help me save and invest. I’m trying to learn as much as I can about financial independence so I can best prepare my child for life.

Single and Retired

Nancy Wilkerson retired at the end of 2017 and despite thoughtful preparations, she was surprised to discover a crucial difference in the way that Medicare fees affect single people.

In retirement, I have learned a big lesson regarding Medicare and specifically the income-related monthly adjustment amount (IRMAA). The brackets are very punishing to anyone who isn’t married, filing jointly.

Which financial experience in the past decade is shaping the way you look to the next decade? Join the conversation below.

A relatively small increase in income, such as taking money from a 401 (k) for home repairs or reaching the required minimum distribution age of 70-1/2, can move a single person (including head of household and widow/widower) up one or two brackets. For example, a withdrawal of $35,000 can result in an additional $2,000 or more [a year] in IRMAA for singles, while it is likely to have no impact on those married and filing jointly.

Now, I have to consider what impact returns from investments will have on my IRMAA bracket. Are the returns sufficient to offset additional taxes and any other income-adjusted costs, or is it best to just sit on the cash? Not only do single seniors need to think about the tax implications of 401(k)s, IRAs or other income, they should also consider the significant impact these will have on their IRMAA.

A Plan for the New Graduate

Andrew Clark offers a road map to financial security that he created for his son, who recently graduated from college.

Within a year of graduation, my son will have no college debt, a paid-off new car, and he will be living in a home he owns.

1. Open three bank accounts. One for after-tax savings, one for routine bills and one for spending.
2. Allocate your paycheck. Put 10% in a 401 (k), allocate a certain monthly amount for budgeted, routine bills (food, gas, etc.), and put the rest (at least 20%) in an after-tax savings account.
3. Live at home at first to save cash so you can move out.
4. Share major expenses with a family member. As a graduation gift, I split a $30,000 truck with him. I paid $15,000 and he will pay off the other $15,000 with his signing bonus. Also, we plan to buy a condo together. He will put down $5,000 and I will cover the rest. It will be held in a trust or a company that we form. He will pay the note and the utilities, then he can move out in two to five years, at which point we will rent it out and buy a new place for him to live. Then, repeat.

Want to learn more about Retirement in 2020? Visit another article on cwgadvisors.com: https://www.cwgadvisors.com/2020/01/02/retirement-2020-what-to-watch-for-in-the-new-year