As I write this, the stock market is off about a third from its high, with no sign of a rejuvenation. According to an April 2, 2020 article in Forbes, a MagnifyMoney survey found that 38% of investors are worried they’ll lose all their retirement savings due to the COVID-19 outbreak. Almost 10 million Americans have filed for unemployment in the first two weeks since serious social isolation happened. This double sledgehammer of job loss and dwindling assets is a hard burden to bear. The need for protecting retirement finances is even greater in the COVID era.
Many people are staying in their jobs and delaying plans for retirement – that is, if they have a job at all. Some are losing sleep due to concern about their future. A lot of us feel that we are in the grip of forces beyond our control – all because of an invisible bug/virus which has potentially done more damage to the economy than anything since the great depression. This loss of control and uncertainty can be as damaging as the financial impact itself.
I hope you have a good adviser to guide you through the financial and I always recommend that you talk to a qualified professional before making any major financial moves. With that in mind, here are some things to consider doing (and not doing). After all, sometimes non-action is preferable to action, especially if your action is driven by emotion or short-term panic.
Prepare your financial documents. It’s hard to make financial changes if you don’t have a starting benchmark. Basically, you need to know the details in three areas.
- Compile your assets and liabilities to create a balance sheet/net worth statement. Don’t be surprised if it has taken a hit due to the COVID crisis, but this does not mean the future can’t be better. And for a perspective about why its not just about the finances, read Mark Evan Chimsky’s excellent article, The Retirement Balance Sheet that Will Change Your Life.
- Capture all sources of income, including wages, business, pensions, social security, trusts, dividends, draw-downs from investments, and any other sources of income.
- Craft a budget, outlining all of your fixed and variable spending. You will now be in a position to take effective actions.
Cut your spending. There are many things you can do to reduce spending and the tendency is to dismiss some of these as trivial. Yet, every dollar you save this month is a dollar that can be invested and earning interest or dividends for the future. Here are some examples of expenses to reduce:
- Travel. As a retiree, you usually have more flexibility about when to travel. Why not save 10-20 percent and travel in off-peak times? My husband and I usually travel either late spring or early fall, when the crowds dissipate, the weather is better and the costs are lower. We also either plan travel far ahead or take advantage of short-term discounts to save substantial amounts.
- High credit card payments. You will gain substantial financial benefits if you stop paying high interest rates on anything. In fact, we make it a point to fully pay credit card charges monthly and never pay interest.
- Investment and banking fees. There are many banking and investing options. My philosophy is to spend nothing on bank service fees and as little as possible in investing fees.
- Clothing. Of course, it makes you feel good to wear new clothes, but many retirees hurt themselves with too much spending in this area. A good rule of thumb is never pay full price for clothing since there is always another sale coming. Also, think carefully about buying something you will wear very few times (Yes, I know there are exceptions).
- Live entertainment. There is very good entertainment to be had at $10, $20 or $30 per ticket and these events are often just as enjoyable (and far less crowded) as those costing 3-5 times as much. And with the possibility of future pandemic outbreaks, who wants to be crowded in among tens of thousands of other fans anyway?
- Insurance. Have you checked your current insurance policies against other options? For example, we thought our auto insurance was competitively priced but found we could save almost $300 per year with another quality company.
- Media and Internet. There are lots of options to save money in this category, including satellite, cable and streaming services. Even if you are happy with your current entertainment provider, you can often get a better deal by contacting the customer service department and telling them you are thinking of switching the service off. You will usually be transferred to the “retention” department who will often give you incentives to stay.
- Mobile phone. Careful shopping in this area can gain you $20 to $50 per month in savings. Most major carriers offer senior plans for folks as young as 55. Major brands own lower-cost brands like Virgin, Cricket and Boost. Another option is mobile virtual network operators (MVNOs), which are low-cost carriers that piggyback on the four major networks. I’ve heard good things about Consumer Cellular and Republic Wireless.
- Automobile. The Bureau of Labor Statistics reports that adults age 65 and older, spend 16% of their retirement budget on transportation. Holding onto your car for another couple of years or perhaps eliminating one of your cars altogether, can have a big positive impact on your finances.
- Coffee. I know that this one will be controversial for those of you who need their daily $3-5 fix from Starbucks or whoever sells your caffeine drug of choice. And yes, we love our caffeine too, but are more than happy to drink it at $.50 per cup. However, if this is a “vice” you can easily afford, why not?
Maintain an emergency fund. Now, more than ever, you need to keep 6-12 months of expenses in an account you can get to easily, with no withdrawal penalties. This fund will help ensure that you don’t have to cash in under-performing assets to pay current and or unexpected expenses. Even more important for protecting your retirement finances in the COVID era.
Get relief. If you happen to be one of the many who are taking a big financial hit due to the COVID financial crisis, you may be able to gain relief in the form of delayed mortgage, auto, credit card and other payments – usually without interest or credit report penalty. There are also expanded unemployment and other benefits. Don’t let pride deter you from taking advantage of these options. The virus is not your fault (or mine for that matter) and these programs are put in place to help all of us recover.
Believe in the future. There have been numerous events that caused the stock market to fall – sometimes major and sometimes minor. These include the Spanish Flu pandemic, Great Depression, World War I and II, Korean War, Cuban Missile Crisis, Vietnam War, SARS, MERS, Swine Flu, Ebola, the 2008-2009 housing crisis, and so forth. You get the picture – life happens. However, all of these events have one thing in common, they did not stop the upward momentum of the market. Don’t forget that lots of people sold stocks when the Dow was at its lowest point in 2008, convinced that the worst was yet to come. Yet, between 2008 and 2020 the index rose almost four-fold before dropping due to the coronavirus crisis. Please don’t be one of those who sells at the low point in the market and buys back in again when stock prices are higher.
Take advantage of the stock sale. Many great stocks are now “on sale”. If you purchased shares in a quality company at $50 and the share price has dropped to $30, this doesn’t mean the company has 40% less inherent value. This may be time to invest in the market at deeply discounted prices, especially if you are buying into companies with a history of dividend increases. There are many such companies available, plus mutual and index funds that specialize in quality dividend stocks.
Buckle up for the future. You may have heard prognosticators talk about a “V” shaped recovery, meaning that the stock prices imploded quickly but will also come back quickly once they hit bottom. I’m not smart enough to predict market timing but I am not depending on a V recovery. Many health experts predict that the virus will occur in waves, with perhaps significant relief late spring or summer, with another wave of COVID-19 rearing its ugly head this fall. I have zero idea if this is true or not, but if you are taking a longer-term view, you should be okay either way. For more about this, read my article about Achieving Financial Peace of Mind in Retirement.
As mentioned above, before acting on these recommendations, particularly the purchase or sale of assets, you should talk to a financial professional about the specifics of your situation. Preferably, use an adviser who specializes in retirement finances instead of an individual who is a financial generalist. Chances are your situation and objectives are vastly different than someone who is decades younger and you want an action plan that reflects this.
I wish you the best in protecting retirement finances in the COVID era as we fight this crisis together and hope you come out healthy and financially secure.
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