No matter who you are, virtually every aspect of your retirement plan will be impacted to some extent by the coronavirus crisis. Most likely it already has been, and you’re asking yourself questions such as: Can I still afford to retire when I want to? Will there be jobs available if I want or need to keep working? What does the crisis mean for my tax strategy, my Social Security or my estate plan? You may even be wondering: Do I still really want to travel or take a cruise after all of this?
These are valid concerns because, in addition to being a health crisis, this is obviously an economic crisis of historic proportions. The good news is you still have time to take action—to make changes and modernize your retirement plan for the new “corona-economy.” Getting started is as easy as scheduling a complimentary 15-minute phone call with me.
The Many New Realities That Boomers are Facing in This New Corona-Economy
Even before this crisis, Baby Boomers faced many retirement issues that our parents and grandparents didn’t. Not surprisingly, many of these challenges will be (or already have been) enhanced by the coronavirus crisis. For example, with longer lifespans, many Baby Boomers need or want to continue working well into their retirement years. For many, those plans may have to change as the new corona economy takes shape and millions face layoffs.
Here’s another example: Today, an estimated 20% of Baby Boomers provide eldercare to a parent or other family member, either remotely or in person. Many specialists believe the current crisis may result in permanent changes for nursing homes, senior housing, and assisted living developments—changes that could impact your loved ones or even you down the road.
Permanent changes are also likely in store for the travel industry, which is a huge issue when you consider that travel is one of the top goals for a majority of retirees. In January, the AARP reported that Baby Boomers planned to spend an average of $7,800 on four to five trips in 2020. Half said they were planning at least one trip abroad, and a third said they planned to take a cruise ship. As for how many of those trips will be canceled due to fear or financial hardships remains to be seen, but some believe it could be enough to significantly change or limit some travel options for retirees in the future.
These are just a few of the ways in which the coronavirus economy is impacting retirees and near-retirees, specifically.
Stock Market Chaos is Typical and Underscores the Need for Asset Protection
The extreme volatility we’ve seen on Wall Street since this crisis started is the same kind of market chaos we saw before the last two major corrections this century. Ultimately, those chaotic swings gave way to total market losses of nearly 50% in the first correction from 2000 to 2002, and nearly 60% in the second correction from 2007 to 2009. You may have still been in your prime working years during one or both of those corrections and may have seen your 401(k)s and other accounts devastated, possibly twice.
Hopefully not. Hopefully you took action to reduce your stock market risk with the help of the right financial advisor. If not, then the main potential impact of this crisis on your retirement is obvious: it could shrink your nest-egg to a point where you may have to drastically minimize your retirement goals or put off retirement altogether. While no one can say for sure that this is the start of our third major correction, at this point I believe that probability is more likely than not. If so, historical evidence suggests we could be looking at total market losses of at least 55%, and possibly as great as 80%.
How the Coronavirus Crisis is Changing the Attitudes of Many Boomers
I believe one silver lining in this dark time is that it’s changing the outdated attitudes that many Baby Boomers had toward retirement planning and opening their eyes to the importance of financial defense. Financial defense is the very cornerstone of the income-based investment model. That’s because when you shift your strategic focus from portfolio growth to retirement income, you’re typically investing to: 1) reduce your exposure to market volatility, 2) try to protect your principal and decrease your risk of spend-down, and 3) generate reliable income at a fixed rate regardless of market conditions.
What Can You Do to Help Protect and Modernize Your Retirement Strategy for the New Corona-Economy?
You may have heard brokers or other advisors say that it’s already too late to reduce your stock market risk, and that if you pull out now, you’ll “lock in your losses”. I disagree. I would argue that if you believe history is likely to repeat itself and that this market will eventually hit a 55-80% bottom point, then you can still act now to help protect your investments from additional losses.
Also, since there’s no law that says you can’t get back into the market at a lower point, you can buy in again when the market hits bottom and ride the next long-term secular bull market cycle back to the top! The right advisor can help you implement that strategy. At the same time, you’ll have modernized your retirement plan for the new corona-economy, and greatly reduced at least one source of stress in this extremely stressful time.
Is Now the Time to Talk to Your Advisor?
Now more than ever, I believe finding the right financial advisor to help you make changes and adjustments to your retirement plan is critical, whether it’s revisiting your tax strategy, modifying your estate plan, or making sure your asset allocation is still right for RMDs or Social Security. Most urgently, you should be reducing your stock market risk to prepare for the potential of another major market correction.
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