Rethinking financial goals after COVID-19 when you're nearing retirement
Monday, 13 July 2020
You've been saving, planning and envisioning retirement on the horizon. Then the COVID-19 outbreak happened.
Your retirement savings probably took a hit. You may have even lost your job or had your income reduced. You could be dipping into your savings accounts to cover expenses. All of a sudden, retirement seems much farther away.
But there are steps you can take to gain greater control of your ﬁnances, reduce some of the stress and get back on the path to retirement.
Review your retirement savings and ﬁnancial plan
Review your accounts in order to get a better picture of where you stand, not necessarily to make extensive changes to your investments. Minor adjustments might be warranted, but making wholesale changes to your portfolio in response to recent market activity is not typically recommended. In fact, many investment advisors discourage investors from making changes to their portfolio based on emotional responses to market ﬂuctuations and other dramatic events.
You can work with your ﬁnancial consultant—or seek the assistance of one—to tweak your portfolio and 401(k) to improve your comfort level. But holding steady and sticking to your plan could possibly be the best course to take.
Build up cash reserves
Now more than ever, it's important to have a healthy backup fund. If you already have an emergency savings account, it could make sense to build it up even more. If you don't have an emergency fund, it should probably be a priority right now. This could mean putting oﬀ large purchases or unnecessary expenses in favor of saving.
Having suﬃcient cash on hand in order to reduce risk is so important during this time that many investment consultants suggest pre-retirees have ﬁve to 20% of their portfolio in liquid cash accounts such as high-yield money market accounts or certiﬁcates of deposit (CDs).
Consider working longer
In a recent retirement conﬁdence survey about the impact of the COVID-19 outbreak on retirement plans, 26% of respondents said they would delay retirement altogether, while 67% of working individuals said they would continue to work in retirement.
If you are able and willing, delaying retirement and working longer could be a smart ﬁnancial move. According to a study by the Society of Actuaries, delaying retirement by even a few years could signiﬁcantly boost your savings. A few more years of earning and saving, combined with a plan for maximizing your social security beneﬁts, could put you in a better position to retire when the time comes.
Take advantage of low interest rates
Historically low interest rates can provide opportunities for smart, strategic borrowing. Reﬁnancing may not be an option if your home is paid for or close to it. However, if you still have many years left on your mortgage, you could consider reﬁnancing to reduce your term to 15 years. It might increase your monthly payment, but you would pay less interest in the long run and get your home paid oﬀ sooner.
You might consider a low-rate home equity line of credit, which could give you some much-needed ﬁnancial ﬂexibility. With a HELOC, you don't use it if you don't need it. But it's good to know it's there in case you do.
Also, if you have any lingering debt—such as from credit cards—transferring your balances to a lower-rate credit card or consolidating them with a personal loan could help you pay less interest and knock out your remaining debt faster.
Don't forget about unemployment beneﬁts
Millions of Americans lost their jobs during the pandemic, and it still remains to be seen what the employment landscape will look like going forward.
If you did lose your job or had your income reduced, consider applying for unemployment beneﬁts. The Coronavirus Aid, Relief and Economic Security Act (CARES Act) extended unemployment beneﬁts to more Americans, including part-time and so-called 'gig' workers. Check with your state unemployment oﬃce to see if you could qualify for some beneﬁts while you remain out of work.
In many ways, those nearing retirement could potentially feel the greatest economic impact of the COVID-19 crisis. But with some revising, planning and patience, you can hopefully keep retirement in sight.
The content provided is for informational purposes only. Neither BBVA USA, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial consultant about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA USA or any of its affiliates.
Links to third party sites are provided for your convenience and do not constitute an endorsement. BBVA USA does not provide, is not responsible for, and does not guarantee the products, services or overall content available at third party sites. These sites may not have the same privacy, security or accessibility standards.
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