Life’s often about adapting and adjusting. Living with COVID-19 has and will likely continue to bring its challenges. We just emerged from the deepest and shortest recession in modern history. It appears a second wave is likely, but not another shutdown says Goldman Sachs Group, Inc., a leading multinational investment bank. Mainly because we’re better prepared, the virus is better understood, and shutdowns are harsh and nonlinear. Nevertheless, diversifying your retirement funds is an important way to protect yourself from market volatility. However, there are other risks besides volatility that can knock and keep you off course. Here are four risks to review and cover with your family and trusted advisors:
Household or Business Disruption
The pandemic has impacted us all one way or another. How has the pandemic impacted you? Some common challenges in addition to income interruption include a change in household. Your kids might have moved in to live with you again or you’re faced with distanced learning. If you’ve been working from home, you know that it comes with its own set of challenges. On the business front, it’s meant shutdowns, supply interruption, and social distancing – to name a few. While some household budgets have been helped by lower spending (travel, dining, shows), others are hindered by layoffs, furloughs or additional childcare. It may impact retirement savings and debt reduction plans. Some may be considering accessing funds through retirement plans, Paycheck Protection Program (PPP) loans and other COVID-19 liquidity sources. Other planning opportunities include replenishing cash reserves, updating contingency plans (including personal estate agreements) and fine-tuning insurances needs.
This is called the “Hidden Menace” because it quietly robs you of purchasing power. You’ll need period pay raises in retirement to keep pace with cost of living. A “sure thing” such as a certificate of deposit has risks. Sure, the future payments (interest and principal) are fixed, however, they’re worth less and less over time. A $100 bill today will be worth half its value in 24 years if inflation averages 3 percent annually (Rule of 72). It may make sense to have some money invested for growth, so you beat inflation and income taxes for a different kind of safety – the ability to maintain your lifestyle.
Funding retirement was a lot easier when you got your gold watch at 65 and punched the clock in your mid-70’s. Continued advances in longevity have two impacts. First, we need to accumulate more retirement savings – longer period of living expenses and potentially higher costs of aging. And second, this “Age Wave” generates new products and services and impact health, social, and lifestyle priorities for the future says Ken Dychtwald and Robert Morison in their latest book “What Retirees Want – A Holistic View of Life’s Third Age”.
Finding Yourself Alone
How do you make important financial decisions, and how would that process change if an important person to you were no longer in the picture? Take a couple considering the purchase of a home – maybe they divide the duties and one decides what the home will look like and the other is focused on the finances. What if you find yourself suddenly alone through one of the “Three D’s” – death, divorce or dementia? Would it be wise to have a plan to help you navigate – to keep things from falling through the immediate, flexibility during the intermediate for the haze to clear and time for the next chapter to unfold, and a sounding board for the longer term?
Life isn’t meant to be easy. But there are some tips for success. One is to know what you want out of life and your what your future will look like. Devise a plan to get you there recognizing the actions you take today will shape the future. Surprises in life will happen, some good and others not. And hopefully with a roadmap and a guide, you’ll make adjustments to stay on track or reset the course and get where you want to go. The other is to be awfully lucky. I’d put more money on the first. Secure your future wisely.
This article can also be viewed at the Reno Gazette Journal.