By Albert Lalonde
The pandemic has brought the possibility that some older workers will have to retire sooner than they planned.
One factor is that people 65 and above are considered to be among the highest-risk groups for severe illness from COVID-19. Thus, as the economy opens back up, baby boomers in particular are thinking twice about returning to office environments that could expose them to an increased risk of contracting the disease. And while in some cases retirement decisions will be voluntary, retirement may be essentially decided for some older workers due to jobs being eliminated as struggling companies restructure.
One report showed retirements of people from 50 to 65 and over have surged because of the pandemic. Medicare eligibility starting at age 65 and full Social Security benefits soon thereafter become economic incentives. But as we know, it takes a lot more than government aid to get us through the retirement years. And for older workers who planned to work long enough to collect full Social Security benefits but instead retire earlier, that could have permanent financial consequences. Filing at the earliest age of 62 will get the retiree only 75% of their annual full benefit. Whereas every year you delay filing for Social Security past full retirement age brings an additional 8% until you turn 70.
People often keep working as long as they can so they can continue to add to their retirement savings while also benefiting from employer-subsidized health insurance. Many older workers from the 40s on up think they will need to work longer because of the current economic crisis. But due to the pandemic, we seem to have less control over length-of-career considerations than ever before. And because of that, it ups the ante on taking care of your retirement funds in advance of retirement, and knowing ways to grow them and balance the risk to them.
When trying to figure out how to protect your retirement portfolio in the uncertain months ahead, remember that sometimes, trying to save yourself from future market volatility can result in major investing mistakes. Here are some examples to avoid during this recession:
- Being too conservative. Finding a foothold for financial stability is on many people’s minds given these nervous times, but stability can be taken a bit too far. For example, focusing almost exclusively on fixed-income investments limits your growth potential. They won’t match the growth of equities when the economy rebounds. One rule of thumb: the majority of those not yet retired should put at least half of their portfolios in equities, and the younger one is, the higher the percentage of equities. You can reduce risk and achieve stability by improving the quality of your equities, such as those with well-regarded management and consistent customers, and those that have paid dividends over a long period.
- Ceasing to invest. While some companies have paused matching employee 401(k) programs due to the pandemic, it’s not out of the question that they’ll one day resume when a recovery ensues. But no saving plus no investing equals putting yourself much further behind for retirement. If you can afford to contribute to an IRA or 401(k) during the recession, do it. Suspending your investing because of concerns that your positions will lose value is a back-sliding strategy that can bite you. As the economy climbs back, share prices increase, but if you sat on cash while waiting for a recovery, you won’t benefit from the upswing. And later on you’ll pay higher prices for those shares, when you could have gotten them for less.
- Trying to time the market. Basing investment decisions on current market conditions is tricky. Some people are making those kinds of decisions, such as selling off or pausing contributions, to protect themselves from future market declines. But for example, when deciding to liquidate, you later may have to decide when to reinvest. Will that timing always be good? No. Even professional fund managers have difficulty timing the market. So it’s better to remember that you got into the stock market in the first place because, over long periods, history shows it often trends up. Don’t react to what’s happening today. Stick to a consistent schedule of investing. And remember: long-term growth helps fund your retirement.
About Albert Lalonde
Albert Lalonde, a financial planner and investment advisor representative, is the founder of Kaizen Financial Group (www.kaizenfinancialgroup.com). Lalonde, a fiduciary, was inspired to enter the financial industry after watching his parents navigate their own retirement with no one to properly advise them. He has passed the Series 65 securities exam and holds an insurance and health license. Lalonde graduated from Montana State University, from which he earned two Bachelor of Arts degrees.