Has the Pandemic put your retirement plans on hold?
There is no question that the global pandemic has affected all of us in some way but those that were thinking about retiring soon may be feeling particularly impacted. How will the fallout and long-term ramifications change your retirement plans, and will you still have enough money to last? Anyone that is planning to retire soon or has just recently retired will likely have many questions like this.
While you are justified to be concerned, some strategic adjustments and appropriate actions steps today should be able to allow you to stick to your original plan. Here are five things you should consider doing now to keep your retirement plans on track:
1) Bulk up your savings account by eliminating un-necessary expenses. I wrote about this step back at the start of the pandemic, but it is no less important today. Cutting your lifestyle expenses doesn’t have to be permanent but it can go a long way in protecting your retirement paycheque if you do so now. Perform a full review of your spending over the last couple of months by printing off a copy of your credit & debit card statements and highlight all items that aren’t required necessities for daily living. Decide which could be cut out for a little while to bolster your emergency funds.
2) Consider tax-loss selling. Capital losses realized during a given year can offset capital gains incurred in that year, one of the three previous years or any future gains. Using these losses against gains may allow you to lower taxes as you lead into retirement and even qualify for additional government-based income programs.
3) Look at refinancing your mortgage if you still have one. This may not make sense for everyone once you take closing costs into account, but it is worth taking a look into, especially if you are also carrying other higher-interest debt. To evaluate whether it might make sense to refinance, a good “rule of thumb” is to divide your closing costs by the monthly savings. If the answer is 24 or less, refinancing will likely make sense (ie. It will take you two years or less to break even from the closing costs and the savings each month will put you farther ahead after that point).
4) Rebalance your investment accounts while they’re down. Based on current market performance, your asset allocation probably doesn’t align with your desired stock/bond mix right now. Rebalancing in a down market by moving some of your fixed income over to equities can allow your portfolio to rebound more quickly during a recovery. This of course does carry some potential for added risk and should only be considered after consulting with a Certified Financial Planner who is looking at your overall situation.
5) Invest a portion of your emergency fund. Along the same lines of the rebalancing discussed above, it might make sense to put some of your short-term savings into the market ONLY IF you have sufficient savings set aside. It is typically recommended to have one year’s worth of expenses set aside in short term savings when you enter retirement but if you have more than that sitting idle, deploying it now while stocks are trading lower might make sense.
Entering retirement at any time without a comprehensive financial plan is not a good idea – even more so during times of heightened volatility. A holistic plan will detail exactly where you are today, what goals you have for the future and provide a detailed roadmap of how you will reach those retirement goals. It will also consider major market drops like the one we just experienced to ensure that an economic event won’t derail your retirement plans.
Your long-term financial success will be greatly impacted by the steps you do (or don’t) take during a bear market. Consider working with a Certified Financial Planning professional to make sure that your retirement is still on track!
This column is written by Michelle Weisheit CFP, IG Wealth Management and presents general information only and is not a solicitation to buy or sell any investments. Please contact your own advisor for specific advice about your situation