For those on the cusp of or already in retirement, COVID-19 has the potential to be a major disruptor in their lives. Even prior to the pandemic, report after report highlighted how little Canadians had saved for retirement.
COVID-19 has accelerated a fear that had already been mounting – the worry outliving your money. The reality for many is they could live too darn long and haven't saved enough to see them through their retirements.
Retirees today have to face their current financial reality head on and have decisions to make:
01. Will you consider postponing retirement and is it within you control to do so?
If so, this will hopefully give your portfolio time to recoup some of its lost value. Many in retirement have already been working to add an element of socialization or orientation to their day. Additional income will now be added to list of why people may choose to work longer. That isn't necessarily a bad thing nor does it mean forever.
02. Should you take advantage of RRIF reductions?
As part of its COVID-19 emergency response plan, the government decreased the required minimum withdrawals from RRIFs by 25 per cent for 2020.
All seniors should take advantage of this, if you don’t strictly need all the RRIF funds to live on, because it keeps more money working on a tax-sheltered basis in your RRIF, at least for 2020,” Robyn K. Thompson, president of Castlemark Wealth Management Inc., said in an email.
“Normally, required RRIF withdrawals are based on a percentage “RRIF factor” that’s multiplied by the fair market value of your RRIF assets as of Jan. 1 each year.”
03. Tuck away extra cash for living expenses.
It has always been prudent in retirement to have one year's worth of living expenses tucked away in cash or near cash equivalents such as GIC, government bonds, even rental or pension income. Never has that need been more apparent. Cash is king and will give you financial flexibility when you need it most. The last thing you want have to do is sell out of a stock that has been beaten down in a bear market and lock in a loss.
Now may be the time some explore annuities. This is where you transfer a lump sum of your portfolio to an insurance company and, in return, you receive a payment for life that could cover off your annual fixed costs.
04. Plan out what your retirement may look like.
Living through a pandemic magnifies the importance of living and retiring well. This is not an either or situation – you get to do both. However, your golden years will be tarnished if you don't have a plan of how you are going to occupy your time, fulfill your passions, allocate your money and live the next third of your life to the fullest.
Every retirement will be different and your lifestyle decisions will drive your retirement funding requirements.
I will leave the last word to Thompson:
“It is difficult emotionally to stick to your plan and stay invested, especially in retirement. It’s hard to do when all your news and social media feeds are screaming ‘market crash,’” she said.
“Buying and selling when market gyrations are making headlines only incurs extra trading costs, creates possible tax issues, and dampens your overall longer-term returns. Don’t abandon your plan when you need it the most.”