Retiring or Near Retirement in 2020? Financial Lessons Learned from COVID-19

The COVID-19 pandemic has made this an interesting year for investors—particularly for those in or near retirement. But is it fair to call 2020 a “game changer” for retirement planning? swan: financial lessons learned for retirees in 2020
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Key Takeaways

  • In general, retiree finances have been stable through COVID-19 

  • Near-retirees have been harder hit by the pandemic 

  • Retirement planning—perhaps with a professional—can help investors prepare for unexpected “black swan” events

The COVID-19 pandemic has dominated our lives for the better part of a year now, but its impact on retirement income and retirement planning is just being seen.

“For many retirees, the pandemic hasn’t had a strong impact on finances,” said Dara Luber, senior manager, retirement product at TD Ameritrade. “Instead, the social life is the hard thing to manage, and there might be long-term health care issues.”

For near-retirees, though, the concerns caused by the coronavirus pandemic might be more of an issue, according to Luber. No matter where you are in your retirement journey, it’s important to plan ahead and prepare for improbable-but-high-risk “black swan” events such as a global pandemic.

Retirees Feel Confident About Their Finances

Interestingly, the COVID-19 pandemic hasn’t changed how most retirees feel about their finances. A survey from the Transamerica Center for Retirement Studies—which was conducted in June 2020—found that 75% of retirees remain confident about maintaining a comfortable lifestyle through retirement.

“Even though the markets have been a bit rocky, they’re up on the year,” Luber pointed out. “Additionally, many retirees have been forced to scale back on travel and dining due to the pandemic, reducing their overall expenses.”

Without the same access to activities and friends, retirees are more likely to struggle with social life. Additionally, as Luber noted, having COVID-19 could create health care issues in the future, depending on the lasting effects. Preparing for a potentially sudden change in long-term health might be an important part of the retirement planning process.

“In general, though, many retirees aren’t seeing a huge change to their finances,” Luber said. “With markets at or near all-time highs, combined with limits to spending, there’s not a lot for retirees to do, even though the sharp stock drop in March probably caused some stress.”

Near-Retirees Might Need to Rethink Their Plans

Rather than focusing on current retirees, Luber said some of the lessons might be better applied to near-retirees, who have probably been stressed out by trying to time their retirement in 2020 during a global pandemic.

“Even though the market is higher on the year, it’s been rockier this year,” Luber commented. “For those who are one to two years outside retirement, there’s a lot of uncertainty and concern.”

One of the biggest issues is what to do with the stock market. Even though stocks are higher overall, large drops like those seen in March—as well as the potential for more stock market volatility as COVID-19 cases and hospitalizations continue to spike in the United States—can cause stress.

“The situation might be different next year if this virus isn’t under control and if underlying economic conditions catch up to the market,” Luber explained. “Near-retirees might need to look at the situation and figure out how to move forward in that case.”

And let’s not forget unemployment spiked to an all-time high of 14.7% in April 2020 as the nation entered lockdown and quarantine. Though the labor markets have stabilized and recovered quite a bit, unemployment has remained stubbornly high. Plus, many economists see the pandemic as helping speed up the transition to a high-tech workforce. This could be adding another layer of stress to near-retirees who need to retool and enhance their tech skills in the twilight of their working years.

6 Strategies for Dealing with a Black Swan Event—Like a Pandemic

When preparing for retirement, Luber pointed to the importance of assuming your retirement will come during a black swan event, or that a black swan event will occur shortly before or after your planned retirement.

“You need to consistently plan for these types of black swan events—pandemic or otherwise,” Luber explained. “Know what your wants, needs, and wishes are. COVID-19 lessons aren’t too different from what you’d learn from other events.”

Some of the strategies Luber suggested for near-retirees hoping to reach their goals in the time of COVID, or within the next couple of years, include:

  • Consider working longer. In some cases, it can make sense to extend working years, retiring later to save up more money, or push back the time frame for receiving Social Security. Learn more about full retirement age and timing the start of Social Security benefits
  • Apply remote work savings to retirement accounts. Beef up your retirement account if you still have contribution room. If you’re working from home because of the pandemic and saving money on the commute and other costs, invest those in your retirement account. If you’re at least age 50, you can use those as catch-up contributions if you’ve reached the regular contribution limit.
  • Boost retirement account contributions with other savings. If you haven’t been eating out or traveling as much due to COVID-19, increase your retirement account contributions to build your portfolio.
  • Consider what needs to be cut from your budget first. Know ahead of time what you can get rid of in your budget if needed. If your job is impacted by the coronavirus pandemic, know in advance what things can be reduced to make your budget more manageable.
  • Be ready for a Roth conversion. Depending on the situation, you might be in a good place for a Roth conversion. This can be effective during a downmarket, or when you have an income decrease and the tax bill might not be as big. You don’t need to convert your whole retirement portfolio, but it might make sense, after speaking with a professional, to move a portion.
  • Consider a bucket strategy. For those worried about a market crash, implementing a bucket strategy ahead of retirement and even during retirement can help. With a bucket strategy, your more immediate living needs can be held in cash. You might sell some of the well-performing assets and keep the cash needed to cover one to two years’ worth of expenses. This can help reduce the chances you’ll need to liquidate investments during a down cycle.

Prepare for an uncertain future by socking away as much as possible and considering potential problems. Planning ahead can help you protect your retirement portfolio, even during unpredictable events.

“Realize, too, that spending won’t be a straight line,” Luber said. “Things change over time. Maybe you spend more at first and slow down a bit. Perhaps later you see more medical expenses or long-term needs. The idea is to shore up your retirement account and think through scenarios so you’re ready for almost anything.”


Key Takeaways

  • In general, retiree finances have been stable through COVID-19 

  • Near-retirees have been harder hit by the pandemic 

  • Retirement planning—perhaps with a professional—can help investors prepare for unexpected “black swan” events

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