Can you retire successfully during a pandemic?
While the global coronavirus pandemic has impacted everyone, some of the hardest-hit groups, both emotionally and financially, are those who are — or were — on the brink of a major life transition. Graduations. Weddings. New babies. New jobs. And, of course, retirement.
The economic fallout of COVID-19 means some people will, reluctantly, retire earlier than planned when their jobs are eliminated. Others may work longer than they had hoped in order to rebuild their savings, while others may have no choice but to semi-retire on the back of reduced hours and/or reduced salaries.
To fully explore the impact of the pandemic on people at the point of retirement, Equitable teamed up with The Atlantic Re:think for an in-depth overview, which you can read here. There are many different aspects to being ready for retirement, but the earlier you start thinking about it, the better prepared you’ll be. Below, we’ve highlighted five key points of consideration for those who are at or near this stage of their lives to help make the right decision during these uncertain times.
1. Use time at home to “practice” retirement
If you’re currently staying at home or working from home, take the opportunity to spend some time thinking about how your retirement plans might be affected by the virus. For many people, a long-held vision of retirement involves travel, spending time with children and grandchildren, or being active in the community. With some of these activities potentially curtailed, use a journal or a vision board to reimagine what retirement could look like under new circumstances.
From a financial standpoint, a “rehearsal retirement” for 6 months or a year beforehand can help you decide if you should continue working for a bit longer, if possible, or identify areas where you can make changes in your spending habits. Involve your partner and other loved ones in this discussion. The people who know you best may be able to offer a fresh perspective and ideas on what could bring you happiness in retirement, even in changing circumstances.
2. Check in on your portfolio
Regardless of what is happening in the market, it is critical to maintain a long-term focus in your portfolio, with a diversified mix of investments based on your individual goals and tolerance for risk. But, carefully consider your appetite for risk may not be the same in today’s economy. This is a good time to check in with your financial professional on whether you should rebalance your portfolio. You don’t need to wait until you can go and see them in person. Many financial professionals have adopted a virtual practice and are connecting with their clients through Zoom or other online platforms.
It’s important to be sure your portfolio is still fully diversified, with a mix that may include stocks of small and large companies, U.S.-based equities and international equities, short- and long-term bonds, and both international and domestic bonds. Diversification plays an important role in reducing risk and limits your exposure to overreactions to specific events in certain markets.
Even as you approach retirement, it’s important to remember you are still a long-term investor. Many people rely on their investments for a retirement that can last up to 30 years or longer. Talk to your financial professional about whether your portfolio is positioned to provide growth for the long term, as well as income in retirement.
3. Reconnect with your financial professional on income
Retirement income should be another critical item on the list of topics for your financial professional. If you’re approaching retirement, you’ve likely worked on some analysis of where your income will come from that may include:
- Social Security payments
- A pension
- Withdrawals from an employer plan, such as a 401(k) or 403(b)
- Income from annuities
Other issues to consider include your financial commitments, present or future. Do you have any debts? A mortgage? Car payments? Are you paying for someone else’s student loans or their present education? It’s also worth considering whether you have sufficient capital in your “emergency rainy-day fund” — if you have one at all. The pandemic has emphasized the importance of having easy access to funds for immediate use, which means you don’t need to tap into depressed assets and can instead wait for them to recover.
Do you need more protection from possible downturns, while accepting this means lower returns? Talk to your financial professional about whether your needs have changed, what sources of income might vary with the market, and to what degree that variance is a problem or a concern for you. They’ll help you get back on target. If you have not already discussed sources of guaranteed income, such as annuities or pensions, this is a good time to do so. With a clear picture of what you’ll need and what you’ll have, it will be easier to see how you may need to adapt your retirement plan.
4. Think about long-term care
One of the issues that has come to the fore in recent months is the importance of safe, reliable long-term care. Finding the right care setting — whether at home, with family, in a continuing care retirement community, assisted living or another option — can be tricky. For near retirees, those decisions are hopefully years in the future. But being prepared, having the right conversations to help you understand and make provisions now for those costs, will ensure it is easier to make the right decision for you later.
5. Prepare for change
Retiring at 65 was already a fading tradition before the pandemic and, based on these reflections, you may decide to continue working longer if you are able to do so. In fact, in 2019, the number of Americans working over the age of 65 grew by more than 700,000 to 10,600,000.1 Shifting to contract or part-time work may mean you need to adapt your spending more significantly than planned. Conversations with your family and a financial financial professional can help you create a budget and stick to it. Honest communication and teamwork are especially important if you’re among the millions of households currently coping with the stress and unfamiliarity of having to survive on a single paycheck or reduced salary.
You may need to make some short-term pivots now — spend less to preserve cash, delay purchases — but it’s not forever. The current climate highlights one key truth about preparing for retirement: The more you plan ahead, the better shape you’ll be in for unforeseen downturns and the easier it’ll be to adapt to any necessary life changes, ensuring the best years of your life are still ahead of you.
Asset allocation is a method of diversification that positions assets among major investment categories. This tool may be used in an effort to manage risk and enhance returns, but it does not guarantee a profit or protection against loss in a declining market.Equitable is the brand name of Equitable Holdings, Inc. and its family of companies, including Equitable Financial Life Insurance Company (Equitable Financial) (NY, NY), Equitable Financial Life Insurance Company of America (MLOA), an AZ stock company with main administrative headquarters in Jersey City, NJ; Equitable Advisors, LLC (member FINRA, SIPC) (Equitable Financial Advisors in MI and TN); and Equitable Distributors, LLC.