It may not be obvious, but we have a retirement problem in this country and the economic crisis created by the efforts to combat COVID have exposed it. Not enough people have enough saved for retirement. The economic conditions that began back in the early Spring have forced many older workers into forced retirements that they were not fully prepared for. For those younger workers who suddenly found themselves on unemployment, there aren’t enough jobs that offer strong retirement benefits or high enough wages to allow them to look beyond the survival necessities (i.e. rent, food, gas, etc.). Demographics and class also play a role in whether people have the opportunities to save for retirement. While there are a lot of tools available today for anyone to save for retirement, the tools are not the issue. The issue is that fewer people have wiggle room financially to save enough for retirement. Most people with hefty retirement accounts either had jobs that paid well or spent years working for big companies that offered strong benefits. For many in the gig economy or working for small businesses, the opportunities to save and the benefits of things like matching contributions or stock ownership plans are just not there. And yes, there are more working in the gig economy or small businesses than many of us realize. So what’s the solution? Well, there was recent legislation passed that makes it much easier for small businesses to band together and offer retirement benefits as well as pushes back the age for requirement minimum distributions (RMDs). However, we may need to have a larger discussion about how we go about saving for retirement after these current economic conditions improve, particularly about pay and the cost of living in this country. There may also need to be further reform of the tools that we have, making them easier to use and understand. We will see what the future brings regarding all this.
There are many reasons why people retire. There are also many reasons why people continue to work well into what some consider the “retirement years”. If you are one of those people working well into your 60s or 70s–or have decided you want to continue working well into those age ranges–what keeps you motivated to stay in the working world? In recent years, many have said that health and retirement benefits are a big factor for staying employed. For others, it can be the social aspect of the office that keeps them motivated to keep working. Some may have no choice but to work so as to pay off debts or build up a bigger nest egg. If this current recession that we are in remains for a prolonged period, many older workers may continue working so as to be able to afford retirement. Such decisions were common as well a little over a decade ago when we went through our last serious economic downturn. Whatever your reason for continuing to work into your golden years, just make sure that you fully embrace your decision and that you are doing so for the right reasons. Also, don’t lose sight of retirement and the wonderful time that it can be for you. Set retirement goals and celebrate when you meet them.
Wow, 2020 has been a wild ride so far. We started the year off with what seemed like a strong stock market, solid economy, and no fears of COVID-19. That quickly changed less than three months into the year as much of the country came to a standstill after Coronavirus reached our shores. It’s fair to say it’s been a bit of a rough ride since then. It’s also hard to say what the rest of the year will bring. However, 2020 has also brought some big changes to retirement saving and planning. First off, the SECURE Act was signed into law in late December 2019 and while the changes it brings about might not be immediately felt, it could have a big impact of how people save and when they plan to tap into their retirement accounts. Then, in late March, Congress passed Coronavirus-related legislation that waived required minimum distributions (RMDs) for 2020 and allowed for penalty-free Coronavirus distributions in certain situations. These changes are more immediate and can could provide relief for those out of work due to state shutdowns or layoffs. As we move into the second half of 2020 there is still a lot of uncertainty regarding what the future may hold. We are still struggling to maintain COVID-19 and there are differing views about how to combat the virus. It remains to be seen if further economic relief or short-term allowances may be needed to help people get through these times. So what does this all mean for you? Well, this is a good chance to really think about your retirement savings as well as get a little creative when it comes to saving. If you are nearing retirement, maybe you want to take advantage of the push back of RMD age that was part of the SECURE Act. Or maybe, if you find yourself not back at work yet, maybe you start thinking about your next career–possibly something you can do in retirement. Now is also a good time to assess your retirement savings plan and make sure it can still get you where you want to go and make the changes you need to. What will the second half of the year bring for you?
If you’re thinking seriously about retirement, then most likely you’re a member of the Baby Boomer generation. That means you were born at some point between 1946 and 1964, which currently puts much, if not all of that generation, right in that retirement sweet spot. However, given the havoc the Coronavirus has wreaked on the economy, you might be finding yourself rethinking your retirement plans. The reasons for this rethinking can vary. Maybe your nest egg took a hit in the market swings and you want to build it back up or maybe you lost your job and need a few more years of working to hit your goals. It could also mean working longer than you anticipated or it may mean entering retirement sooner than intended with a smaller nest egg. All these situations can be scary and disheartening. Furthermore, it might be harder to find jobs to work longer at, especially if you are out of work at the moment. If the 2008-2009 economic downturn taught us anything, it’s that the workplace can be unforgiving for older workers and that those in their 50s and 60s face a difficult road ahead when it comes to getting rehired. It’s likely that many jobs are gone for good and with the current numbers of unemployed persons, getting one of those positions might be much more difficult than in the past. There’s also the issue of pay. The pay cuts many took may take a while to come back or may put many in an eventual financial crunch. Lastly, the economy will not recover over night from the loss of spending and money changing hands (i.e. people with income buying goods). Those looking to retire in the coming years may not have the luxury of waiting for this to return to what they were before this pandemic hit. For those forced into an early retirement, they may not have the spending power to make luxury purchases often associated with retirement (i.e. vacations, a new car, etc.) and may instead keep their money in their retirement accounts and only spend on necessities. It’s hard to tell what exactly the long-term impacts will be on the economy and it certainly doesn’t mean everyone will be hard hit. It does mean, though, that if you are a Baby Boomer starting to think about retirement, that you be real about what’s going on in the world and the economy. It’s going to be a tough road ahead for Baby Boomers when it comes to the workplace and finances. For those hit hard by the recent economic downturns, it may take years to get back to where you once were, if you manage to get back at all. I don’t mean to be cynical, but that’s the facts. Again, I encourage you to be real about what’s going on and your own personal situation. If you need help doing so, I strongly encourage you to speak with a certified financial planner or wealth manager.
People are losing jobs. It’s what happens when the economy takes a turn for the worst. For those over 50, right now can be a downright scary atmosphere. Not only are people losing jobs, but it’s getting harder for those over 50 to get either their old jobs back or a similar job. This was true back after 2009–after the most recent recession–and it’s true now. For many people over 50, especially those over 60, they may just choose to stay jobless after all this is over; they’ll essentially retire. They will effectively be forced into retirement. Now, that doesn’t sound like the worst scenario, but it can be a nightmare. Imagine saving up for a particular retirement and setting plans and goals and then being forced to start tapping into your savings years before you intended to. Suddenly, that nest egg might not seem so large and you weren’t mentally prepared to exit the workforce. This probably is not ideal for many and will likely cause many older Americans to start tapping into their retirement funds sooner than anticipated. It will also force many Americans to reassess their retirement plans and to make changes to how they planned to live out retirement. It can be somewhat traumatic to have to change plans that you had been working towards for years, or even decades. If you do find yourself facing an early retirement, don’t freak out. Take a deep breath and think about the options available to you and whether they fit into your life plans. Can you get by on unemployment for a while? Is now a good time to switch industries or find work in another area? Would it really hurt to start taking money out of your nest egg now? Thinking about these questions can help you either fight the urge to retire or allow you to slide into retirement in a calmer mood.
I don’t want to alarm you–I’ll leave that to the news media–but the Coronavirus will change the world we live in. The economic, emotional, and physical toll that this pandemic will have on society and the global economic has the potential to be astounding. It is already changing the way we work and educate and will most likely force us to re-assess your global supply chain and how we as a society can better detect future pandemics. There is going to be a lot of uncertainty in the months ahead, particularly in the markets, and no one knows when or how things will bounce back. As I said in my post from earlier this week, you could be as diversified as possible, but you will still feel some pain in your portfolio. However, if you’ve been smart with your investments–in other words, done your homework–and have a good understanding of your risk, then you’ve hopefully been able to minimize any damage. Furthermore, if you’ve got the time to really follow the markets, then you might even be salivating at the thought of being able to buy low and position yourself for any potential market rebounds. Regardless of what you are looking to do, don’t be afraid of the future. It can be doom and gloom now, but it won’t always be that way. Yes, we as a society will bounce back. It may take years and we may never quite reach where we were at a week or two ago, but we may come close. Just don’t give up. If your nest egg is struggling, take the steps you need to make it last. If you need to change your plans regarding when you will retire, then do it. If you are just starting to save for retirement and want to potentially build up a portfolio, now is a good time to do so. Just don’t be afraid of the future!
The stock market has been on a downward spiral for almost a week at this point, which has created a lot of worry among even the most amateur of investors. Most reports indicate that the fall is a result of Coronavirus concerns sweeping the globe at the moment, but there may be other factors combined with that. This downward movement–or market correction, depending on who you talk to–has done a serious number on many portfolios and retirement accounts and it’s unclear as to when or how things will recover. While you shouldn’t ignore the market downturn, just remember that you can’t use hindsight to make changes to your past decisions and there is nothing you can do to will a stock/investment to move upwards. Therefore, there is no point in worrying about what others are doing or what the pundits are screaming about at the moment. Rather than worrying about what others are doing or what the market might do, you should focus on making informed, educated decisions regarding your own investments and portfolio. That means doing research and understanding your appetite for risk and adjusting your investments properly. While you can use the news to educate yourself about what’s going on in the world, don’t let it drive your decision making. If you find that your still struggling to handle the market downturn, you should speak with a certified financial planner, wealth manager, or investment professional.
Diversification is important to your portfolio. It spreads your risk around and prevents a market downturn from completely decimating your portfolio by ensuring that all your money isn’t tied up in one sector or one type of stock. Remember, some areas of the markets will get hit harder than others. I’ve mentioned various ways to diversify–such as investing in unrelated market sectors, investing in companies of various sizes, having different investment vehicles. What I haven’t really talked about is going international as part of your diversification. Having some investments in international companies–or companies based outside the U.S. and Canada–can be a smart move as it can allow you to take advantage of other markets that may be on the rise. There are lots of companies around the world that are well-known and just as financially strong, or growing exponentially, like American companies. There may also be some markets not found in the U.S. that can offer strong returns or which are growing quickly. Keep in mind that the U.S. won’t be able to dominate the markets forever and eventually foreign markets will emerge that can provide solid growth and returns. Now, I am not encouraging you to invest in any/all international markets or just any company not based in the U.S. You will still want to do research and make sure you are making a smart investment. And you will probably want to keep your international investments on the smaller side compared to your investment in U.S.-based markets and companies. If you are thinking about investing in international companies or markets, you should speak with a certified financial advisor, wealth manager, or investment professional to make sure it’s the right choice for you and your money.
Whether you want to admit it or not, the Baby Boomer generation is a large demographic. They have a large impact on society as the oldest members of the generation as well into retirement and the youngest are just starting to consider stepping away from the work force. The sheer numbers of the Baby Boomer generation will continue to have an impact on the economy and healthcare for decades to come. Keep in mind that they are living longer than past generations thanks to advances in healthcare and medicine. Why does all this matter? Well, it matters because any large generation moving into retirement age is going to require resources and will have economic impacts. For example, an a large aging population will most likely put a big strain on Medicare or Medicaid. This could have huge impacts on government budgets and how other governmental programs get funded–particularly programs that may impact younger generations. As for the economy, with more Baby Boomers passing away as time goes on, markets that needed them to survive may find the going tough as their customers are no longer there or no longer need their services and/or products. There is also the fact that aging parents and relatives can put a serious financial and emotional strain on their families. This is important to think about for both younger generations as well as those moving into retirement. If you are younger, you will need to think about whether you have the finances to care to for an aging parent. You will also want to have discussions with that aging parent or relative about the type of care they want and the finances involved. If you are part of the Baby Boomer generation and moving into retirement, then you may want to start talking with your children or grandchildren (or nieces or nephews) about the type of care you want and what your finances will allow. This doesn’t have to fall on one generation, but should be a multi-generational effort to make sure that all are on the same page and understand what needs to be done. If you need help with the financial discussions, you should speak with a certified financial planner or wealth manager. They can help you to get an idea of where things stand and what products/services you may want to consider in the future. There has also been a lot of research done on the aging Boomer generation, so you may also want to read up on that and the potential impacts that may lie ahead as Baby Boomers age.
A few weeks ago, I wrote about whether the pending impeachment inquiry would–or could–impact the markets. While I do tend to stay away from talking about things like the Fed or politics, I may make some exceptions over the next year or so, especially as we move towards next year’s elections. As you may well know, the Fed lowered interest rates again last week, which was the third time they’ve done so since July. This move will impact the markets, but by the time you figure out what that impact will be, the markets will already have reacted and you’ll be well behind that. Instead, don’t get too worried about Fed policies and decisions and focus on making decisions that work for you. That means focusing on your own risk appetite and investing companies that you truly believe will help you meet your goals. The same can be said for following politics, especially in an election year. Candidates from both parties will say a lot of things regarding economic policies and plans–some of which may impact the markets–but you shouldn’t let that sway your retirement plans here and now. Yes, you can pay attention to what they are saying, but you shouldn’t use that information to make investment or retirement plan decisions. With all that said, I am encouraging you to be informed, but to also be aware that what you hear doesn’t need to be acted upon.