October 21, 2021

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What’s Next for Your Money in 2021?

Mandatory Credit: Photo by Pavlo Gonchar/SOPA Images/Shutterstock (11549452e)In this photo illustration the US President-elect Joe Biden speaks after the Electoral College formally confirmed his victory during the 2020 U.
Mandatory Credit: Photo by Pavlo Gonchar/SOPA Images/Shutterstock (11549452e)In this photo illustration the US President-elect Joe Biden speaks after the Electoral College formally confirmed his victory during the 2020 U.

By most measures, 2020 was a rough year. Millions of Americans lost jobs or faced pay cuts as businesses closed temporarily—or permanently—as a result of the COVID-19 pandemic. One in four adults have had trouble paying bills and one-third have had to raid their savings and retirement accounts to make ends meet since the pandemic began, according to a Pew Research Center survey. Many have even had to borrow money from friends and family or rely on government support to get by.

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So many Americans are likely wondering whether things will be better in 2021, especially given the new presidential administration. To shed some light on what to expect, investment management company Capital Group recently hosted a virtual “2021 Economic and Wealth Strategies Outlook” discussion. Here is what economist Darrell Spence and wealth strategist Leslie Geller expect for the economy and tips on how to manage your finances in the year ahead.

What to Expect in 2021

Capital Group economist Darrel Spence said the U.S. economy is in unchartered territory. Although there have been pandemics before, the U.S. has never reacted in a way that it has during the COVID-19 pandemic by shutting down large parts of the economy. So predicting when the economy will recover is more challenging. “Economics doesn’t have a lot of good tools for analyzing a pandemic,” he said.

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Senior adult, male patient receives vaccine or medicine from his African descent, home healthcare nurse in nursing home or home setting.
Senior adult, male patient receives vaccine or medicine from his African descent, home healthcare nurse in nursing home or home setting.

The Economy Will Recover in 2021 – If Most People Can Get a Vaccine

Spence said he isn’t thinking of when the economy will recover in terms of calendar years but rather in two periods: pre- and post-vaccine for COVID-19. That said, he does expect to see improvement in 2021 once a vaccine for COVID-19 is widely available. That will allow consumer behavior to return to normal and boost the economy.

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Sunlight shines on the historic buildings of the financial district in lower Manhattan, New York City near Wall Street.
Sunlight shines on the historic buildings of the financial district in lower Manhattan, New York City near Wall Street.

Wall Street Will Recover Before Main Street Does

The stock market already has recovered since the big selloff in response to the pandemic. In fact, there might be too much optimism on Wall Street. Spence said the market doesn’t seem to be taking into consideration that many Americans still are struggling. “The technical recession is over, but the real recession is about to begin,” he said.

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middle-asian-business-man-laid-off
middle-asian-business-man-laid-off

There Will Be More Pain Before the Economy Recovers

Before the economy recovers, Spence said many Americans will continue to struggle financially. The labor market still is weak, and consumers are facing a lot of financial obligations they might not be able to pay, such as rent that is owed. The amount of damage that has been inflicted by the pandemic will make a recovery more difficult. Spence said he expects the economy to come out of the pandemic limping rather than moving ahead at a full sprint.

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Mandatory Credit: Photo by Shutterstock (11009306d)Democratic President-elect Joe Biden is seen during his statement on television monitors in the briefing room at the White House in Washington.
Mandatory Credit: Photo by Shutterstock (11009306d)Democratic President-elect Joe Biden is seen during his statement on television monitors in the briefing room at the White House in Washington.

The New Administration Won’t Have a Big Impact on the Economy

Spence doesn’t expect there to be sweeping changes once President-Elect Joe Biden takes office in January. If Republicans maintain control of the Senate, the government will remain divided, and there will be gridlock. Spence also said that, despite popular belief, whether a Democrat or Republican is president has little impact on the stock market and economy.

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Mortgage Loan approval on mobile phone in a house.
Mortgage Loan approval on mobile phone in a house.

Interest Rates Will Remain Low

Interest rates should continue to remain very low in 2021, Spence said. That’s good news for borrowers. In particular, low mortgage rates could help continue to fuel home sales.

However, low interest rates can create challenges for older adults whose retirement savings are in conservative investments. There’s the risk that their investments won’t grow enough, and they’ll run out of money in retirement. Spence said this highlights the importance of saving for retirement from a young age to give your savings more time to grow.

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Father Works From Home While His Younger Son Makes Him Company While Mum With Other Son Sets Lunch in the Background.
Father Works From Home While His Younger Son Makes Him Company While Mum With Other Son Sets Lunch in the Background.

How to Manage Your Finances in 2021

Planning for the year ahead is challenging, considering that so much economic uncertainty remains. “We don’t know what is going to happen,” said Capital Group wealth strategist Leslie Geller. That’s why she’s been advising people to focus on what they can control. That means getting back to basics.

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an asian chinese active senior woman having discussion with her chinese agent about her retirement investment plan.
an asian chinese active senior woman having discussion with her chinese agent about her retirement investment plan.

Assess Where You Are Now Financially

“The first thing to do is take a step back, be realistic, be kind to yourself,” Geller said. Before trying to make a plan for your finances for the New Year, assess where you are now financially. “Get an understanding of what your assets are, what your debt is—what’s coming in, what’s going out,” she said.

Once you know where you stand, it will be easier to move forward.

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Social isolation problem in retiree citizen, Asian daughter focus on hard working and ignore loneliness elderly old father, Family relationship conflict, Senior mental health problem concept.
Social isolation problem in retiree citizen, Asian daughter focus on hard working and ignore loneliness elderly old father, Family relationship conflict, Senior mental health problem concept.

Get Your Financial House in Order

Geller said the pandemic has led to an increased willingness among people to discuss topics they typically want to avoid: money, mortality, estate planning and family dynamics. However, their willingness to have discussions hasn’t necessarily prompted them to take action to get their financial house in order, she said.

Make sure you actually mark off things you’ve had on your financial to-do list, such as drafting a will, buying life insurance or creating a financial plan based on the information you have. “To keep putting things off is not healthy anymore,” Geller said.

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Make a Plan to Tackle Debt

If you have federal student loans that have been suspended as part of the pandemic relief, be aware that loan payments will resume after January 31, 2021. Geller recommends that you start finding room in your budget now to make student loan payments again. If you won’t be able to afford your payments, look into the federal student aid’s income-driven repayment plans or deferment or forbearance options.

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Mandatory Credit: Photo by Paul Sancya/AP/Shutterstock (10995421i)Democratic presidential candidate former Vice President Joe Biden arrives to speak to supporters, early, in Wilmington, Del.
Mandatory Credit: Photo by Paul Sancya/AP/Shutterstock (10995421i)Democratic presidential candidate former Vice President Joe Biden arrives to speak to supporters, early, in Wilmington, Del.

Focus on Saving

If your job hasn’t been impacted by the pandemic, make an effort to boost your retirement savings. Geller said it’s especially important for higher-income earners to contribute as much as possible to a workplace retirement plan to reduce taxable income. If tax rates do rise under a Biden administration, saving more for retirement could help reduce the taxes you pay.

Find Out: How to Protect Your Retirement Savings During the Coronavirus Pandemic

Smiling young couple buying Christmas presents online using a credit card and a digital tablet.
Smiling young couple buying Christmas presents online using a credit card and a digital tablet.

Don’t Alter Your Long-Term Plan

If you already have a financial plan and a diversified investment portfolio, don’t alter your long-term plan. Spence said that if you’re wondering what you should do in 2021, “Sometimes the answer is, ‘Nothing.’”

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This article originally appeared on GOBankingRates.com: Biden, Vaccines and Interest Rates: What’s Next for Your Money in 2021?

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