Should You Change Your Retirement Plans Due To COVID-19?

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When talking about surviving a financial crisis, do you consider your retirement plans? The Covid-19 pandemic brought devastating health challenges across the globe and economic problems, shutting economies down and generating job losses. It’s clear that the pandemic has changed how individuals manage their personal finances during and after the pandemic.

But when digging deeper into the personal finance aspect, one needs to consider a good retirement plan. Should the pandemic affect your retirement strategies and plans?

The truth is that we tend to make rushed investment decisions when the market is not performing well. Many investors rushed to sell their investments at the onset of the pandemic, which probably affected their retirement plans.

However, it’s important to remember that retirement investment plans are an ongoing process with active management for better performance. Since market volatility is expected, it’s important to stay rational and actively manage your retirement portfolio.

Whether your retirement strategies or planning changes, that will depend on how long you’ve left to hit retirement age.

Early Retirement

If you were hitting retirement or planning early retirement this or the next year, the first step is not to panic. Challenging as this sounds for anyone worried that the pandemic will come in between their well-planned retirement, it’s the best thing to do.

For starters, markets always find a way to get back on track during a recession. It might not be instant, but it happens, hence the reasoning behind letting your investments sit still when the recession happens rather than liquidate.

According to the Financial Times, since the opening of country borders started, some economies are making a slow recovery. If you can still hold to your retirement investments by the end of this year or 2021, there’s a chance of making a return.

Additionally, the Covid-19 pandemic has turned this into a seller’s market. If you sell your investments, you’ll be selling them at a loss, especially when the markets start improving and the assets gain value.

While liquidating is not the best strategy at the moment, you always think of reallocating your investment portfolio to include stable assets once the market starts to pick up. It will help reduce your portfolio’s volatility in the event of another market disruption before your retirement.

Retirement On The Horizon

Perhaps your retirement is on the horizon, say in the next 5-20 years. While you have a short horizon to recover from the effects of the pandemic compared to younger individuals with a retirement horizon of more than 20 years, you still have the time to rebalance or reallocate the assets in your portfolio. What you can do now take a step back and reevaluate your finances and portfolio. Here’s what you can do:

  • Create an emergency fund big enough so that losing an income source or other emergencies won’t make you go into debt.
  • Prioritize on clearing your debts, especially the high-interest debts. If the markets have another recession before your retirement, the recession should find you debt-free, where possible. Some debts, like mortgages, are not bad to retain. During a recession, you will need the little income you can get or your emergency fund to cater to your monthly expenses like rent and food and not repaying multiple debts. Also, during a recession, you might not be in a position to repay these loans, leading to the accumulation of interest and penalties. This will plunge you deeper into debts and even affect your credit rating.
  • Find ways to diversify your investment portfolio to minimize risks and maximize profits. Invest in multiple assets like bonds, equities, real estate, and cash. If you want to focus only on equities, ensure that you invest in different sectors and industries.
  • Increase your retirement horizon – a longer working period helps increase the investments and maximize benefits. Even if you don’t want to stay in the same job, you can start working on a side hustle by monetizing your hobby to earn extra income.

Have A Long Way to Retirement

For the younger generation, like Gen Z and Millennials, with over 30 years till retirement, you still have more time to keep investing and maximize your returns. When the market starts picking up, it will undo the damage to your portfolio caused by Covid-19.

Since you have a longer investment period on the horizon, keep investing and, when possible, increase your investment. This will maximize your returns, and give you a tax break in the short run.

Covid-19 has affected many people in many ways, and it will probably affect your investment outlook. For your retirement, it all depends on how long you have left. With a more extended retirement period, you can find ways to increase your retirement investments, actively manage your portfolio, and remember to diversify. If retirement is closer, find ways to minimize risk in your portfolio while markets recover rather than liquidating.