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.
It’s tough times out there for many Americans. We’re seeing record numbers of people filing for unemployment. For those who have lost jobs, it can be scary to think about where the finances will come from to continue paying things such as rent, mortgages, grocery bills, etc. Thus, during these times, it can be tempting to tap into retirement savings, especially if you have managed to build up a decent-sized nest egg. While I strongly, strongly discourage you from using your retirement savings to get you through these tough times, I realize that it may really be the only option for some. If you find that you absolutely are certain you will need to take some money out of your nest egg to get you through a jobless period, there are some new provisions in the CARES Act recently passed by Congress that can help you. First off, Congress has increased the amount you can take out of your employer-sponsored 401(k), if you have one. The limit used to be $50,000, but they have temporarily expanded it to $100,000 and will allow you to suspend payments on repayment for up to one year. It also allows for the terms of the loan to be stretched from five to six years. Again, this is all temporary under the CARES Act. Another important provision of the recent legislation is that it allows you to take a distribution from other retirement accounts you have without having to worry about the 10% penalty if you are under 59-and-a-half. It should be noted that there is a limit to the size of the distribution and that is $100,000. Now, again, I am not encouraging you to hit up your retirement savings immediately when trying to get through a period of unemployment. Rather, I’m sharing these two important provisions with you so that you are aware of the possibilities to get through tough times. Of course, if you feel that you need to tap into your retirement savings, you should consult with a retirement professional or financial advisor to make sure it’s the right decision and that you understand what you are about to do.
You may have sensed a bit of a theme with my recent blog posts as I have tended to focus on the current economic climate and how it might affect retirees and people saving for retirement. I see no need to change that theme at the moment. However, today I want to remind you that while saving for retirement is very important, so too is surviving to retirement. We are currently in a very difficult economic climate as we have put a massive stall on the economy in an effort to stifle the spread of the Coronavirus. This has led to layoffs and furloughs that are impacting Americans across a wide swath of the working world. These uncertain times have also forced many Americans to tighten their belts in an effort to save money for whatever the future may hold. For those who were living paycheck to paycheck before all this started, it can be downright frightening to think about whether they will make rent in the future or where money to put food on the table will come from. Furthermore, for many who may face unemployment or a temporary furlough in the coming weeks, there is a need to start making decisions now to build up some savings to get through those times. While I always encourage people to save for the future, I also realize that sometimes you have to focus on the now to even get to the future. Thus, if you find yourself in a situation where your work status may not be a definite thing in the coming weeks, focus on saving for that. If that means decreasing your retirement account contributions or cutting back on building your portfolio, then so be it. If it means putting a roof over your head and food in your–or your family’s–stomach, then focus on those needs. There is no shame in focusing your current needs over your future desires and goals. Now is also a good time to review your expenditures and think about where you can cut back, if you haven’t already done so. Budgeting is a crucial skill during tight economic times. Times will be tough, but with some thoughtful money management you can get through them. And, as I’ve said before, we will get through this.
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.
In a stereotypical retirement scenario, the retiree will stop working in their early to mid-60s and spend the next decade or two of their life enjoying the non-working world. While this may vary slightly from person to person, it’s usually how retirement goes for most Americans. Since you most likely won’t be working once you stop working, you will need to make sure you have enough saved to get through the final decade or two (or three) of your life. Unfortunately, more than half of American adults do not have enough saved up to meet their retirement needs. It’s easy to say you want to live “comfortably” in retirement, but to actually save up enough to do so is another story. To put that in perspective, you may want to look at retirement as unemployment. That means you will need to take steps to make sure that you have enough saved to sustain your life without any income coming in. How do you do that? Make sure that you invest at least some of your nest egg. When you do invest, don’t be afraid to take some risk with your money, but only what you can handle. Also, you will want to diversify your portfolio, but not too much. Yes, there is such a thing as overdiversification. Rather, diversify enough to spread out your risk, but stick with steady performing stocks. If you invest early enough, those steady performing stocks can really bolster your nest egg, especially over the course of a decade or two. So, if you need help or motivation in building your retirement savings, look at it as an unemployment fund and take the steps you need to make sure you save enough to live comfortably in retirement. If you need help saving for retirement or creating a strategy for doing so, you should talk with a certified financial planner or wealth manager.
As the government shutdown moves into it’s fourth week, it’s a sobering reminder for many about the importance of having an emergency fund. No doubt that some of the 800,000 federal employees are learning about the importance of having an emergency fund the hard way. Furthermore, there are thousands of lower paid workers in that group who most likely don’t even make enough to have an emergency fund and may have to turn to unemployment benefits or look for new jobs altogether. Before going further, I’d like to be clear that when I saw “emergency fund,” I mean a stash of money that you could live off of for a few months should you find yourself in a situation in which you either couldn’t work or you don’t have income. This savings should be enough to keep a roof over your head, the utilities on, and food on the table. While it can be supplemented with things such as unemployment benefits, it should be enough to get through at least three or four months without any government assistance. Along with your emergency fund, you may also want to consider having a list of assets that you could tap into should you need more money (i.e. stocks you could sell or maybe a luxury item you’re willing to part with). These assets can extend your emergency fund and help you should you find yourself running low on your emergency stash. Now, it’s important to remember that an emergency fund is different from your savings and should be kept separately. Your savings are meant for the long-term and are intended to meet a particular goal, which an emergency fund is meant to be available at any moment for any need. Also, if you find yourself in a situation where you are tapping into your emergency savings, you will need to work on your budgeting skills and strive to keep expenditures to a minimum. An emergency fund is an important part of any financial plans and something that you should take serious both in saving and using.