Retiring during a pandemic? Here’s what you need to know
If you’re nearing retirement, you’re probably wondering what next year will look like. Will you ever be able to retire with this pandemic happening? Should you keep working (if you can) or should you adjust your retirement plans? If you’ve just retired, should you get back in the workforce, especially if your retirement savings took a hit?
If you’re unsure of what to do, you’re not alone. About 8 million Canadians are rethinking their retirement because of the pandemic, according to a new report. The first wave led to layoffs across the country, and while those jobs started to bounce back in the summer months, a second wave of the pandemic makes it impossible to predict anything in such an unpredictable environment.
Should you accelerate or postpone your retirement?
Some Canadians who were nearing retirement have been let go, furloughed or forced to shut a business. Or they may have voluntarily left a job (for example, if they have an underlying health condition that compromises their immune system). As a result, they may be retiring before they’re ready.
Others with a stable job and pension plan may have decided to postpone retirement and keep working through the pandemic. After all, they won’t be going on that round-the-world trip or spending more time with the grandkids any time soon. They may have also faced financial losses that require them to keep working. Or, if they have a defined-benefit pension plan based on years of service, they don’t want to lose any benefits by retiring early.
Whether you’ve decided to accelerate your retirement plans (voluntary or not) — or whether you’re trying to delay them as long as possible — there are a few things to consider about retirement during a global pandemic.
Revisit your plan
Pandemic or not, it’s important to know your numbers. Depending on your personal circumstances, you may need to revisit your retirement plan. If you’ve been forced into early retirement, for example, does your plan still leave enough to live on? If not, are there areas where you can reduce your discretionary spending or cut expenses? Or can you put off a planned expenditure or downsize your home?
But, don’t panic …
Whenever markets are volatile, it’s easy to panic and make snap decisions. Avoid the temptation to move into conservative investments that won’t keep up with inflation. Instead, continue to work with your ACU financial advisor. If you don’t already have an investment strategy that takes into account the ups and downs of the market, work on one that will. The same goes for pension plans (if indexed to inflation) and real estate assets. Sometimes the best course of action is simply to stay the course.
Diversify your retirement income
Soon-to-be retirees may want to consider diversifying their potential sources of retirement income, such as income from a rental property or an equity release on their mortgage. “Both options are relatively insulated from market volatility when compared to pensions and could become increasingly popular for individuals to consider as they move closer to retirement age, should their pension not have reached its desired value,” according to Senior Insurance Analyst Daniel Pearce in a report by data analytics and consulting firm GlobalData.
For those who want a guaranteed source of income in retirement, it might be worth talking to your financial advisor about annuities — which won’t drop even if the stock market does. An annuity is actually a form of insurance, which pays out a monthly or annual stream of income for as long as you’re alive (which could be ideal for those who don’t have a defined-benefit pension plan).
There are different types of annuities (an immediate annuity allows you to start collecting payments right away, but requires a lump-sum payment up front), so talk to your ACU financial advisor about whether this makes sense for you.
If your portfolio has lost its value, then you need to make up the difference — either through more time or additional savings. If you have a stable job, particularly one with a pension, it may be worth holding onto until we get through the worst of the pandemic. Even a year or two could make a big difference.
If you’re able to work remotely, this may have additional advantages. Perhaps you can save money on everyday expenses such as commuting and eating out. Or, you could even consider downsizing to that retirement cottage early (in an area with a lower cost of living) while you keep working. This gives you more time to earn and save — and gives your investments more time to recover.
But if you lost your job or were forced to retire, you could consider part-time work, short-term contracts or even gig work to avoid tapping into your social security benefits and retirement savings. This may be easier said than done in a tough job market, but there are options. If you’ve been laid off, for example, you could talk to your former employer about contract work. Alternatively, you could start a home-based business (offering consulting services, for example, or selling items on eBay) to bring in some extra cash.
Keep in mind the RRIF deadline
When you turn 71, you’re required to convert your Registered Retirement Savings Plan (RRSP) into a Registered Retirement Income Fund (RRIF) and withdraw the minimum amount from your RRIF (which typically starts at 5.28%). However, the federal government has reduced the mandatory withdrawal requirement by 25% for 2020. Talk to your ACU financial advisor about how to estimate withdrawals from your plan and manage your taxes on withdrawals.
Stay the course
While the situation may seem dire, keep in mind that the Spanish Flu of 1918 was followed by the Roaring Twenties. While you may need to make some adjustments to your retirement plan — from a financial perspective, as well as an emotional one — it’s important to consider the long-term and not make rash decisions based on the short-term.
If you’re close to retirement or already retired, talk to your ACU financial advisor about your options so you can enjoy your golden years when we come out the other side of the pandemic.
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