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New Year, New You: Improving Financial Fitness

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New Year, New You: Improving Financial Fitness

Al Waller: The new year is here!! As we call it a wrap for the last year (2022) and settle into the new year (2023), it’s an excellent time to review our finances and plan for the future.

Welcome back to ClearPath – Your Roadmap to Health & Wealth SM. I’m your host, Al Waller. Joining me is Catherine Collinson, founding CEO and president of nonprofit Transamerica Institute® and its Transamerica Center for Retirement Studies to share ways people can focus on their financial fitness in the new year.

Before we get started – a reminder that we would love to hear from you and learn what topics you would like us to cover or give us feedback in general. Please drop me or Catherine a note at [email protected].

Catherine, you and your team do a lot of research on people’s financial situations and retirement preparations. Taking that into consideration, what are some of the trends you’re seeing in your research that people could or should be doing?

Catherine Collinson: Hi, Al. As we enter the new year, now is the perfect time to focus on our finances, especially since we’ll be paying off the last of our holiday bills, getting ready for tax season, and planning for the year ahead and farther into the future. This year, it’s particularly important that we do so because so much is happening in the economy and in our lives. So, if you're up for it, Al, I'd like to share 5 tips for getting financially fit in the new year.

Al Waller: I think most of us can certainly relate to how much has changed. When you consider soaring inflation, interest rate hikes, and lest we forget the volatility in the financial markets, I feel like we've been on this financial roller coaster these days and it's not a fun ride. So, with that said I'd welcome any and all guidance. So, let's start with your first tip.

Catherine Collinson: Transamerica Center for Retirement most recent survey found that 76 percent of workers said their life priorities changed during the pandemic. My first tip is to reflect on these new priorities and ask yourself if your finances are in alignment with them? Are you focusing your resources on what’s most important to you now? Are you expending resources on things that are no longer important? As a sanity check, I recommend reviewing your expenses over the past 12 months with these questions in mind. And bigger picture, I recommend you look at your savings and financial goals, too.

Al Waller: That's a great point and exercise that I think would benefit all ages across the spectrum, whether you're single starting out, raising a family, approaching a retirement, or already enjoying it for that matter. Now, what has your research uncovered in terms of people's financial priorities these days?

Catherine Collinson: It’s probably no surprise that our survey found that people have competing financial priorities. However, I think it’s interesting to put in perspective how many people share these priorities and how we as individuals compare.

Here’s what our survey found about workers’ financial priorities. More than half of workers – 57 percent – cited paying off one or more types of debt as a financial priority. Fifty-six percent cited saving for retirement as a priority and 40 percent cited building emergency savings. Almost three in 10 workers – 27 percent – indicate they are just getting by to cover basic living expenses.

Al Waller: Got to say, Catherine, the fact that people are focused on saving is extremely encouraging. On the flip side, I find it equally concerning that so many people are in debt – in some cases critically so.

Catherine Collinson: I think that's a great question and something that we need to put in perspective. Debt comes with different terms, conditions, and interest rates. I think we all know debt can be helpful for financing big ticket investments such as a college education, purchasing a home, or buying a car that we need to get to and from work. The key is to have a plan to pay it off and stick with that plan– and to be on the lookout for opportunities to refinance. On the other hand, if you are carrying high interest rate credit card debt, your top financial priority will likely be paying it off – because it can grow and compound so quickly and can easily spiral out of control.

With that said, my second tip for the new year is to create a personal balance sheet that factors both your savings and debts, so you can hone in on your pain points and priorities and start setting goals.

If you are wondering how to create a personal balance sheet, you could use a personal finance software package like Quicken or consider consulting with a certified financial planner or professional advisor. Check with your employer’s retirement plan provider and/or employee assistance program to see if they have resources available. A growing trend among employers is to offer a financial wellness program to their employees.

Al Waller: That's good to hear. Now, let's talk about savings because I'm personally intrigued by your survey finding which implies many workers site building emergency savings as a priority.

Catherine Collinson: Al, that’s a perfect lead-in to my third tip for the new year, which is to build emergency savings. Our survey of workers found they have saved a median of $5,000 to cover the cost of unexpected major financial setbacks such as unemployment, medical bills, home repairs, or auto repairs – which may sound like a lot but doesn’t go very far during an extended time of unemployment or if you need a major roof repair, for example. Fourteen percent of workers have no emergency savings, which is particularly concerning.

It's critically important that we have emergency savings to cover these types of setbacks. Without it, if disaster strikes, our options could be limited to going into debt – possibly high interest rate credit card debt, borrowing from the “bank of family and friends”, which could have their own strings attached, or tapping into retirement accounts – and potentially harm their long-term growth.

In addition to emergency savings, it’s also important to save for health care expenses, especially if you are in a high-deductible health insurance plan that comes with a health savings account or HSA.

Speaking of insurance coverages, it’s also important to check if your current insurance coverages are appropriate and adequate.

Al Waller: Well, Catherine, while these points are very well taken, your financial “to do” list is really growing to the point where I must confess – it's starting to feel just a little bit overwhelming to me.

Catherine Collinson: You raise a good point – and please don’t become overwhelmed because that could be counterproductive. This relates to my fourth tip for the new year, which is to create a financial to-do list in a way that you can work on it in the coming months. You don’t have to complete it all at once, you can schedule it out over the course of the year. Consider tying certain activities to key dates such as when taxes are due, or when you expect to get a raise, or during employee benefits enrollment season.

Al Waller: Now we're covering a lot of real estate in this conversation, but we haven't actually touched on retirement preparations. Since you indicated that more than half of the workers cite saving for retirement as a financial priority, I'd be curious to know how well these people are faring.

Catherine Collinson: My short answer to your question is our survey finds mixed news. The good news is that 78 percent of workers are saving for retirement through an employer-sponsored 401(k) or similar plan and/or outside of work. The not-so-good news is that many are not saving enough, and only 24 percent are “very confident” they will be able to fully retire with a comfortable lifestyle.

Al Waller: That’s more than a little discomforting. What can and should people be doing to improve their retirement outlook?

Catherine Collinson: Engage in retirement planning is my fifth tip for the new year. Our survey found that only three in 10 workers have a written financial strategy for retirement, and more than four in 10 “guessed” how much they need to save for retirement.

A good starting point is to use a retirement calculator and other do-it-yourself tools -- or consider consulting with your employer’s retirement plan provider or a financial advisor to learn how much you need to be saving and how you should be planning.

I also highly encourage everyone to avoid procrastination. One of our most powerful yet often overlooked resources is time. The sooner we get started, the more time we have to save, invest, and grow our wealth.

Al Waller: Thank you, Catherine, for sharing these financial tips for the new year. Before we sign off, do you have any final pearls of wisdom that you would like to share?

Catherine Collinson: We’ve already covered the five tips, but I do have one more idea that I’d like to share. So, I’ll call this a bonus tip… Be sure to invest in yourself by safeguarding your health, keeping your job skills up-to-date, and staying in sync with the employment market. You and your earning power tremendously influence your financial options and long-term outcomes.

For our listeners who are interested in reading the survey report that I’ve referenced, it’s titled Emerging From the COVID-19 Pandemic: Four Generations Prepare for Retirement. Along with our other research, it can be found on our website at www.transamericainstitute.org.

Al Waller: Thanks again, Catherine, for sharing your team’s substantial research, insights, and expertise. I’d also like to encourage listeners to check out other financially-oriented episodes of ClearPath – Your Roadmap to Health and Wealth covering topics ranging from inflation and interest rates to having candid financial conversations with family.

For our listeners, if you have ideas for future episodes, comments, or feedback, please email me or Catherine at [email protected]. Don’t forget to subscribe to our podcast so you don’t miss upcoming episodes.

Until the next time, I’m your host Al Waller. Have a fantastic financial new year. Stay safe, be well and thanks for listening.

ClearPath – Your Roadmap to Health & Wealth is brought to you by Transamerica Institute, a nonprofit private foundation dedicated to identifying, researching, and educating the public about health and wellness, employment, financial literacy, longevity, and retirement. You can find our weekly podcast on WYPR’s website and mobile app, wherever you get your podcasts, and at transamericainstitute.org/podcast.

ClearPath – Your Roadmap to Health & Wealth is produced by the Transamerica Institute with assistance from WYPR.

The information provided here is for educational purposes only and should not be construed as insurance, securities, ERISA, tax, investment, legal, medical, or financial advice or guidance.

Al Waller is a long-time Baltimore native and employment expert with a 30-year career in leading and advising locally and globally based corporations on matters including: Talent Acquisition and Retention, Employee Relations, Training and Development.
Catherine Collinson is the founding president and CEO of nonprofit Transamerica Institute and its Transamerica Center for Retirement Studies, and she is a champion for Americans who are at risk of not achieving a financially secure retirement. With two decades of retirement industry-related experience, Catherine is a nationally recognized voice on workforce, aging, and retirement trends. She was named a 2018 Influencer in Aging by PBS’ Next Avenue. In 2016, she was honored with a Hero Award from Women’s Institute for a Secure Retirement (WISER) for her tireless efforts in helping improve retirement security among women.