Monday, 13 July 2020

As a retiree, you're probably adept at managing your money in order to make it last.

The financial crisis brought on by the COVID-19 outbreak, however, may have put additional pressure on you to carefully manage your resources and stretch every dollar as far as possible.

With this in mind, there are some strategies to revisit your financial plans, protect your retirement savings and reduce expenses as you navigate the economic uncertainty brought on by the pandemic.

Consider skipping required minimum distributions

As you probably know, when retirement account holders turn 70-1/2, they are required to start taking minimum distributions from their retirement accounts and pay taxes on those withdrawals. Distributions, also known as RMDs, are calculated by the Internal Revenue Service and based on the retiree's age and account balance at the end of the previous year.

However, the Coronavirus Aid, Relief and Economic Security Act (CARES Act), which became law in late March 2020, allows you to skip required minimum distributions for this year. This provision is not retroactive, though, and you can't redeposit any RMDs you have already taken in 2020.

Congress made this change to help retirees whose accounts had lost value when the stock market plummeted at the beginning of the coronavirus crisis. The goal was to allow retirees to leave money in their accounts so they could hopefully recoup some of the losses when the stock market rebounds.

Also, RMDs are based on a retiree's retirement account balances at the end of the previous year. Therefore, 2020 RMDs would be based on 2019 account balances, which were likely much higher than they are today. Taking 2019-based withdrawals from accounts with lower balances now could deplete accounts quickly, which could cause significant problems down the road.

And while no one can predict when or how much the market will rebound, if you can afford to skip your RMDs in 2020, you may regain some financial ground in your all- important retirement accounts.

Reduce spending and delay large purchases

In order to take advantage of the opportunity to skip your RMDs and potentially erase some of your paper losses, you might have to dip into your cash reserves to cover living expenses. But preserving cash is also important. That's why you may wish to reduce expenses for the immediate future.

Chances are you're probably already spending less than you were prior to the COVID- 19 outbreak, as your social and recreational activities have likely dwindled. Try to minimize expenses as much as possible for the time being to protect your cash while you allow your retirement accounts to recover.

You might also want to delay large or unnecessary expenses temporarily. Do you need to replace the roof this year? Can you live with your appliances a little longer? Right now, amidst all this uncertainty, prioritizing financial security over non-essential expenses could give you greater peace of mind going forward.

Try to earn more on your savings

Speaking of cash, are you earning as much as possible on your cash accounts? Interest rates are low, which can make it difficult to earn much, but if you could move your money into higher-earning cash vehicles, it might be worth it.

For example, you could possibly earn some additional interest with a longer-term Certificate of Deposit. However, you won't have penalty-free access to your money until the CD matures. Make sure you can afford to tie your money up for the entire term before going this route. There are shorter-term CDs and other savings options that could help you earn a little more without restricting access to your money for too long.

Talk to your financial consultant about asset allocation

Most financial experts discourage investors from panicking and overhauling their portfolios during economic crises. However, it's probably wise to review your portfolio with your advisor to see if you need any minor adjustments.

Look into guaranteed income

If you have a lump sum to invest, you might want to consider an annuity. A good option for retirees is an immediate payment annuity. Also called immediate fixed annuities, this is a one-time purchase that begins to produce a guaranteed amount of income shortly thereafter. Fixed annuities are not tied to the stock market, so there is no risk your monthly income payment will change. The amount of the monthly payment is based on the purchase price combined with the age and gender of the person buying the annuity.

Annuities can be a smart option, but it's important to understand all the details, monthly payment, fees, death benefit and more before you purchase one.

In the wake of the coronavirus pandemic, even those who thought they had saved more than enough to live comfortably in retirement are having to take steps to make sure their plans are still workable. But with some slight adjustments, common-sense lifestyle changes and some help from your financial consultant, you can continue to look forward to many more years of financially secure retirement.

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