Adjusting Your Retirement Plan Due to COVID-19

Back in March, at the beginning of the COVID-19 shutdowns, all we wanted was for the world to go back to normal. Many of us have since realized that “normal” as we knew it is gone forever and that still more uncertainty lies ahead.

That development should not cancel your retirement plans, but it could force a temporary adjustment.

Can you still afford to retire on your original timeline?

For those of us who were hoping to retire this year or in 2021, the pandemic may have delayed retirement plans. Even younger professionals are anxiously checking their account balances, worried about uncertainty and market volatility. Those who are already retired and relying on their savings may discover that they must supplement their incomes by going back to work.

Everyone’s situation is different. However, you should know that very few people are fortunate enough to feel 100% insulated from the fallout of this economic crisis. The question is, how can you make the best financial decisions for yourself and your family, now that COVID-19 is upon us?

Understand your income channels

Step one, write down all of your income sources. Depending on your personal circumstances, they may include a full-time job, part-time gigs, rental income, income from a small business, Social Security, a pension, income from your investment accounts, 401(k), IRA, annuities, etc.

Once you have captured the current state of things, make a second list of income sources that you are not using right now (but you could in a pinch). Get creative. Include things you would do happily, as well as things that you would rather avoid. Reverse mortgage, tutoring, pet sitting, selling things on eBay, garden consulting, growing gourmet mushrooms… The longer you can make your list, the better.

There are several reasons to spend time on this second list. One reason is highlighted by a recent survey from Personal Capital, an online financial advice company. Survey participants were asked whether they felt financially prepared for retirement, and how many sources of income they had. Among survey respondents, those with three or more types of retirement income were far more likely to feel prepared for retirement. We have always known that it’s useful to diversify your sources of income in retirement, and the COVID-19 crisis has confirmed it.

The second reason is less obvious. This list is there to encourage you by showing, in black and white, that you are not at the end of your rope. There are so many things you have not yet tried. It doesn’t mean that you should immediately launch into doing some (or all) of them, but it certainly helps to know that you have choices.

Understand your spending

Step two, understand your spending. There are many ways to look at your household budget. In normal times, most of us would prefer to not look at it at all… However, these are not normal times. So, if you are usually allergic to budgets, now is the time to make an exception.

Examine your budget from two angles. First, look at it in terms of regular recurring expenses (housing, groceries, gas for the car) versus one-off expenses (insurance premiums you pay every quarter, an occasional visit from the plumber.)

Next, break your budget down into essentials and non-essentials. Essentials should include things like housing, utilities, food, insurance, and medical expenses. In some cases, debt repayment should be included in the essential category, as well. All other expenses should be marked as non-essential.

The purpose of this exercise is to help you get insight into the irregular expenses that eat into your budget, and to demonstrate that, if you had to, there are things you could cut. Again, depending on your situation, this may or may not be an immediate call to action.

Focus on your long-term goals

Finally, spend some time thinking about your long-term goals. Beyond the balance in your 401(k) and how much you can get from Social Security, what is it that you want from retirement? How do you want to spend your time? What memories do you want to make? What’s your plan to remain active, connected, and of value to the community around you?

Now, look at your answers carefully.

They may reveal that the changes forced on you by this unprecedented COVID-19 pandemic don’t go as deep as you thought. You may discover that you can still have and do the things that matter most. Among financial worries and health concerns, it is possible to find hope and live your life in a way that brings you personal fulfillment and joy.

Source: Personal Capital survey