Preparing for retirement during coronavirus

Are you preparing for retirement during the coronavirus crisis? Many professionals who are planning to retire in 2020 and beyond are facing unique challenges and circumstances. Probably your investment portfolio took a hit in February and March. Maybe your job is at risk. Many people have been furloughed. Some have lost their job. Large employers have announced hiring freezes. Small business owners are facing an existential threat to survival. Landlords are facing uncertainties with rent collection. A range of jobs has become obsolete overnight.

Future retirees will have to make difficult choices in the coming years. With global Interest rates near zero, retirees can no longer rely on traditional safe vehicles such as treasuries, corporate bonds, and annuities for income. The Social Security fund will be depleted in the next decade. The US is building an enormous budget deficit with no plan to repay it anytime soon. Even companies with extensive dividend history are suspending dividend payments to shareholders. Even your private pension might be at risk.

Take a holistic view of your finances 

I cannot emphasize enough how important it is to have a comprehensive view of your finances. if you are preparing for retirement during the coronavirus crisis you must be proactive. We do not know what the future will be after the coronavirus. Some variations of social distancing will remain for the foreseeable future. This crisis will impact every private and public organization. The best way to prepare for the future is to take full control of the presence. Having a holistic view of your finances will help you make informed financial decisions and watch out for blinds spots. Collect all essential financial pieces from 401k and rental income to life insurance and pension. Draw a full picture of your financial life. Take the stress out of your retirement and start planning now.

Stick to a budget

The coronavirus pandemic has brought the first recession since the financial crisis. The US GDP shrank by -4.5% in Q1 of 2020 and is expected to shrink even further in the second quarter. Nearly 30 million Americans have filed for unemployment. Even if your job is safe, now is an excellent opportunity to take control of your budget. Aim to save at least 10% of your income. If your retirement is imminent, you should save at least 20% of your income. With so much spending out of reach – restaurants, travel, theaters, festivals, and sports events, this is an opportunity to access your spending needs for the next few years.

Pay off debt

The coronavirus crisis proved that liquidity is king, and high levels of debt are detrimental. The extreme volatility we saw March 2020 was the result of inventors looking for cash at any price. Make sure you pay off all your debt before you retire. You must make a cautious effort to clear all your debt, including mortgages and credit cards. Even loans with lower interest can be dangerous if you do not have the income to support it. Start your retirement with a clean slate.

Review your investments

The steep market selloff in March 2020 brought troublesome memories of the financial crisis. The stock market lost 35% from its February high. The wild daily swings ended the longest bull market in US history. Just when everyone was expecting another shoe to drop, the Fed stepped in. The Federal Reserve launched not one but several nuclear bazookas and saved the economy from complete collapse. The quickest drop on record lead to the quickest recovery. The massive Fed intervention alongside positive news of bending the curve, state reopening, vaccine progress, and remdesivir drug approval pushed the stock markets higher.

At the time of this article, Nasdaq was flat for 2020. S&P 500 was down -12% and Russell 2000 down nearly -25%. Gold 10-year treasury is paying 0.64%, and the 30-year treasury is yielding 1.27%.

With all that in mind, you have a perfect opportunity to review your investment portfolio. Take a deep dive and make changes if necessary. Remember that your investments must align with your investment horizon, financial goals, and risk tolerance.

Keep your options open

Prepare for multiple scenarios. Without an effective vaccine, the coronavirus will be a threat to the economy for the foreseeable future. However, in every crisis, there is an opportunity. We will experience a full digital transformation in all business sectors and aspects of life.

Despite the call of numerous experts and overnight “authorities” for a V-shaped, U-shaped, L–shaped, and W-shaped economic recovery, I do not know what the future holds. But I know that there is a light at the end of the tunnel. I am confident that we will come out stronger from this crisis. Hopefully, we learn our lessons and become more prepared for future unforeseen threats.

Maybe this crisis affected your health. Perhaps it changed your views about your life and your family. Maybe this crisis made you reevaluate your priorities. It certainly did it for me. As you approach your retirement date, keep an open mind. Have a plan A, B, C, and even D. Build enough cash buffer and never run out of options.

Final words

Preparing for retirement during coronavirus can be stressful. Many of the safe investments and guaranteed income options may not provide you with enough income to support yourself in retirement. Low interest rates are detrimental to retirees. Commodity markets are extremely volatile. The stock market offers dividend and upside with a high risk premium. Real Estate is lucrative but illiquid.

Having a comprehensive view of your finances will help you take a pulse of your financial health. It can help you see areas of financial weakness and strength that you may not be able to see otherwise. Be proactive and keep your options open.

If you are having questions or concerns about your retirement in 2020 or beyond, feel free to contact me directly.

 

 

About Stoyan Panayotov

I am a fee-only financial advisor and the founder of Babylon Wealth Management. As fiduciary advisors, we provide bespoke wealth management and personalized financial planning to busy families in the Bay Area and nationally. Many of our clients are tech workers, physicians, business owners, professionals preparing for retirement and young families looking to build financial independence.

I started Babylon Wealth Management to help young families and successful professionals build, grow and preserve their wealth. Being a fee-only financial advisor, I never earn sales commissions or sell investment products. Furthermore, I am committed to acting in my clients’ best interest by providing trusted advice and bespoke wealth management solutions. I enjoy helping clients develop robust and personalized long-term financial plans to achieve their personal and financial goals.

After completing a bachelor’s degree in Accounting at Varna University of Economics in Bulgaria, at the age of 23, I moved to New York City to pursue a Master of Business Administration at Pace University. I was fortunate enough to have a full merit-based scholarship and finished graduate school with no student loans. Upon completing grad school, I joined the ranks on Wall Street for nearly two years. I specialized in risk management and option strategies for equity and fixed income products for Deutsche Bank and Wells Fargo. In 2006 I obtained a highly recognized CFA designation.

Living in New York without family support was a life-changing experience for me. II arrived at JFK Airport on August 24, 2002. I stayed in a hostel for two weeks and later moved in with three of my fellow Bulgarian students into a one-bedroom apartment in the Bronx. There was a time in life when all I owned was $200, just enough to pay for the next month’s rent. Many times, I contemplated returning to Bulgaria, but somehow, I always pushed through life’s adversities. I’ve learned to appreciate each moment, big or small, that life presents. These challenges have helped me develop strength and flexibility, which supports my practice as a financial advisor.

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