The Lowdown on the Banking Crisis and What it Means for Retirees
May 15, 2023
In the midst of the Great Retirement, an excess of 2.6 million retirees left the workforce during the pandemic. “A lot of people had reasons to retire and the way markets evolved allowed them to,” says research economist Miguel Faria-E-Castro. While health and safety concerns were very real for many, others chose to leave early because of changing work environments or needing to become full time caregivers; others simply took advantage of rising asset values.
The pandemic isn’t solely to blame for the influx of retirees, though. The Employee Benefit Research Institute regularly finds that many Americans end up retiring earlier than planned. Whether you’ve already retired or intend to soon, it may be important to factor the recent banking crisis into your planning.
Understanding the Banking Crisis
In March 2023, the United States’ Silicon Valley Bank (SVB) suddenly collapsed, mainly in part due to a bank run, when their customers rushed to withdraw their funds over panic due to the bank’s loss of stocks. The failure of this California-based bank raised concerns for Americans about the financial health of their own assets, even though the Federal Reserve, Treasury department, and FDIC moved quickly to ensure that all depositors would have full access to their funds, a move meant to calm fears of a full market collapse. Financial experts believe that because of these unprecedented actions, the failure of SVB does not pose a threat to the financial market at this time.
While deposits of up to $250,000 are FDIC insured, many people are wondering if their 401(k) is protected, and the short answer is: It depends. If your 401(k) is uninsured and invested in “stocks, bonds, or mutual funds, you’re not covered against those investments losing value,” then your funds are not protected under the FDIC guarantee, according to finance professor Valentina Bruno. Retirement plans that the FDIC does cover include IRAs, Roth IRAs, SEP IRAs, and SIMPLE IRAs, up to $250,000, but if you had more than one of these (each valued at over $250,000) at the same banking institution, then only one of them would be insured. This is why it may be a good idea to spread your assets out over different institutions.
Planning for Retirement
If you haven’t retired yet, hopefully you’ve begun planning and saving already, because the earlier you start, the more time your money has to grow. If you’re offered a 401(k) retirement plan through employment, it’s important to take advantage and get enrolled. Even better, if the plan allows you to make contributions, do so and you’ll be rewarded with lower taxes at the end of the year. The biggest mistake people make, according to financial expert Jim Yih, is starting too late. “All my clients, no matter how much they have saved, say they wish they’d started earlier.” Yih’s first recommendation is to put away 10 percent of your gross income, starting as soon as you can.
Become the Expert of Your Retirement
While learning all about retirement plans may be intimidating, many financial advisors actually recommend becoming an expert of your own retirement options. If you are not offered a 401(k) through employment, there are other options, including an IRA, which is a plan that you would open yourself through a broker or other provider. Since there are many types of IRA accounts, the most common being a Traditional or Roth IRA, it’s important to learn about the different conditions of each account before deciding which is the best fit for you. Financial author Liz Weston encourages everyone “to consult a fee-only financial planner or accredited financial counselor if at all possible before retiring, simply because there are so many decisions that have to be made.”
No matter the kind of account you choose, the first step is to determine how much money you’ll need when you retire. Experts advise replacing 70 to 90% of your annual pre-retirement income through Social Security and savings. The next step is to determine what your financial goals are now, such as paying off a mortgage or other debts and saving for your childrens’ college tuition. Factoring in these financial boundaries help put retirement budgets into perspective. Yih warns that, “It’s almost impossible [to do it all] unless you have a big income, and even then, things don’t always work out,” so he tells people to choose two or three focal areas that are most important to them.
Exercising Financial Resilience
In order to increase financial resilience, one must learn to anticipate the unexpected. While 60% of families faced a financial emergency last year, one third faced two. If any of your retirement accounts were affected by the banking crisis, then you may have experienced an unexpected loss firsthand. It’s best to prepare for this and diversify your retirement plan. A good rule is to make sure 80% of your savings are invested in methods that have stood the test of time, while 20% of your funds are involved in higher-risk investments.
Thanks to Social Security, whatever your retirement accounts are, you can still plan on collecting something after the age of 65. This also means that if you were affected by the banking crisis and are 65 or older, then you can still count on these benefits. If you intend to retire earlier than 65, then you want to include this factor in your planning. For instance, how much money will you need to carry health insurance before you’re eligible for Medicaid at 65? Since “Social Security is guaranteed income that is adjusted for inflation,” Weston advises delaying Social Security benefits for as long as you can.
Consider part-time work, not just for the supplementary income it will provide, but for the purpose it will likely bring to your life. The lifestyle component of your retirement is as important as having enough money to retire. “The most successful retirees are not the ones with the most money. The busiest retirees are the most successful ones,” says Yih.
Planning for retirement and financial resilience can provide peace of mind and allow you to focus on what really matters. The resolve you’ll feel after tackling financial planning is priceless. Insureyouknow.org can help you store all of your financial information in one place so that your retirement planning remains organized. Plus, when everything is easy to assess, periodically reassessing your finances when circumstances change becomes painless and straightforward.
Meal Planning on a Budget Without Compromising Ingredients
March 1, 2023
Grocery prices are up 11.8% as of December 2022, while certain items, like eggs are up 138% according to the most recent Bureau of Labor Statistics data. With grocery prices soaring, many of us find ourselves pausing in the aisles, debating about whether or not we actually need something. “Meal planning is one way to edit down your shopping list to weekly essentials and save money,” said certified financial planner Ted Jenkin.
Here are five tips to keep your ingredients healthy, and your bottom line low:
- Know your prices. Though making more than one stop can be more time consuming, it can save you a ton of money. Margaux Laskey of the NYT suggests visiting a couple of different stores to take advantage of sales. When you begin keeping track of prices, you may start by taking notes on your phone, but eventually, you’ll memorize them, knowing where to get your regular items at the best price. When in doubt, a quick internet search will tell you whether or not you’re being gouged; coffee is an excellent example of this.
- Take an inventory of what you already have. Frozen meat, perishables, and pantry items are the first three things to check when making your list. For instance, if you already have a jar of marinara and a box of pasta, then you may only need to get ground beef for a fun spaghetti night.
- Always shop what’s on sale. BOGO (buy one get one) sales are great for pricier things like cheese and staples like cereal. “If you spot a good sale on your favorite, stock up!” emphasizes Laskey. She adds that cereal can also be used in cereal bars, pie crusts, and even as bread crumbs. Next, the produce and meat that’s on sale should be the items that help you decide what’s for dinner. Vegetables on sale will make excellent side dishes to almost any meat that’s also on sale.
- Keep breakfast simple, and use last night’s leftovers for lunch the next day. Food will never go to waste if you plan on eating leftovers the next day for lunch. Plus, if you have some leftovers piling up in the fridge, plan on a leftover dinner night. For breakfast, stick to a simple rotation; cereal, oatmeal, and yogurt are all inexpensive and pair well with fresh fruit.
- Give the pantry some love. You don’t need to buy fresh to incorporate produce into your diet. Salsa, marinara, canned veggies, apple sauce, fruit cups, and jams are examples of working produce into your diet without having to buy fresh. Dietitian Mike Gorski points out that with these items “you aren’t sacrificing nutritional value for convenience and reduced costs.” Canned seafood is another way to save; tuna (tuna salad), salmon (salmon cakes), and clams (linguini and clams) will almost always be less expensive than their fresh counterparts.
When in a Pinch, be Realistic
You may find that the store is out of something you need or it’s just really priced too high for your budget; let it go, and be flexible. Some nights, you may not feel well or just be too tired to cook, so have a pre-allocated takeout budget ready. Keep a drawer full of menus and coupons, and know your specials. Many locations have kids-eat-free nights, while grocery stores offer weekday specials too, such as $5 rotisserie chicken days. “Never underestimate the power of a rotisserie chicken,” said Vaughn Vreeland of NYT Cooking, who eats some for dinner, then shreds the remaining meat and uses it later in chicken salad and soup.
If you are one of the 64% of Americans living paycheck to paycheck, creating a budget is imperative. There are several free resources online to help you plan and budget your monthly expenses as well as devise a meal plan for the week. At insureyouknow.org, we recommend that you track your monthly expenses at the grocery store and file receipts, important documents, and all of your family records.