COVID-19 has caused upheaval throughout many areas of our lives. As we adjust what our today looks like – working from home, distance learning, sheltering-in-place – it’s also important to address our future plans. Whether you were planning to retire in 2020 or in the next few years, the Coronavirus pandemic may have changed your day-to-day in retirement.
Comprehensive financial planning is more than just investments. While the financial aspect to retirement is obviously important, knowing how you will spend your time is also key.
Plus, of course, the Coronavirus pandemic isn’t over yet. In many states, cases are climbing again after a slowdown. No one knows for sure when it will end.
Have Your Retirement Plans Changed (or Do They Need To)?
If you were planning on retiring fairly soon, your plans may need to change. Many early retirees plan to travel, for example. But airlines aren’t running their usual schedules (to put it mildly), and many places may no longer be safe to travel to. In some vacation spots, travelers may meet local resentment and run risks, as healthcare systems and hospitals are in danger of overload.
Your own health and safety concerns play a role in travel too, of course. Older people are at higher risk of contracting the Coronavirus and the course of the disease may be more severe than in younger people. If you have certain pre-existing conditions, you may be at more risk as well.
Many retirees also relocate in retirement. While this can still be done safely, buying and selling a home has changed since before the pandemic. Virtual open houses are going strong, but the market and processes face new challenges.
How about plans to visit your family and friends? Many states are still under Shelter-In-Place orders. Many countries still have their borders closed to travelers. With restaurants, lodging and entertainment venues still closed in many areas, visiting with family may no longer be possible.
What do you do? Has your comprehensive financial planning factored in adjustments to your plans? Can you afford your lifestyle if you no longer relocate? If you take a different route in retirement than you originally intended, do you have the funds to support it?
What Are Your Options?
Once you start to consider the potential effects on your day-to-day plans in retirement, you have decisions to make. You may continue with your plans, of course, and retire when you initially planned. Or you may want to adjust your plan, either retiring early or pushing the date back a bit. Let’s look each scenario.
Retire Earlier than Initially Planned
For some pre-retirees, job and economic situation(s) may make it prudent to retire early. Many people have been laid-off due to the pandemic. If you or your spouse are one of them, early retirement may be a solution. If you’ve been furloughed or otherwise promised a job once the pandemic ends, discuss your situation with your financial advisor.
Your employer may sincerely want you back, but the long-term economic health of businesses faced with prolonged periods of reduced schedules or closures is far from assured. Assessing whether your employer will make it through the pandemic, or how your sector may be affected, is part of considering early retirement. The travel and entertainment sectors, for example, may be hard-hit for the long-term.
The physical location of your job may also be a large component of your choice. While many people shifted to working from home due to the Coronavirus, others still commute to work, or may have to again once businesses start reopening. In either case, is your physical situation on the job comfortable for you? Do you feel safe? How do you feel about continuing?
If early retirement looks promising, review your finances before making any hard and fast decisions. Has your retirement nest egg been affected by Coronavirus-related moves in the stock market (or your response to them)? Should you review your asset allocations?
Early on, for example, broad-based U.S. stock market indexes fell dramatically. If you sold stocks at that time, your portfolio may have dropped in value. Some people drew on retirement funds for living expenses due to layoffs or other financial shocks. Are your retirement funds still sufficient to retire on?
Don’t forget that early retirement may affect retirement income. Social Security benefits, for example, are just one example. While you become eligible to take these benefits at the age of 62, the amount can be up to 30 percent less than if you wait until later – and the decrease is permanent. (Read our recent blog post: Social Security and the Pandemic. The right time to take Social Security benefits is a big decision that shouldn’t be taken lightly.)
Pensions, if you’re eligible, may be subject to similar changes.
It’s prudent to check with a financial advisor about any effects of retiring early.
Moving Your Retirement Date Out
Many pre-retirees, on the other hand, may want to move their retirement date out further. Potential reasons abound. You may feel that you’ll be able to proceed with the retirement of your dreams much more easily once life returns to some kind of normalcy. You may be dealing with children or other family members who have moved back into your home, affecting your retirement plans. Health concerns may also play a large role.
Of course, there are also financial reasons for moving your date out as well. If the Coronavirus affected you financially in terms of job loss or financial drain, you may want to recover economically before retiring.
For many people, the sheer uncertainty in life right now is reason enough not to retire in the near future.
If you’re considering moving your retirement further in the future, consider your portfolio allocation. You’ll want to make sure you aren’t overly exposed to stock market risk as you age. You’ll also want to consider your existing savings, planned contributions and retirement budget estimates, just as those considering early retirement do.
Reviewing the effects that the Coronavirus has had on your retirement decisions and your comprehensive financial planning can be complicated. Contact Global View to see how we can help.