5 Retirement Planning Tips in the Age of Coronavirus

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Save more, spend smarter, and make your money go further

The novel coronavirus or COVID-19 has certainly upended much if not all of daily life for many people around the world. In addition to worrying about health and safety, COVID-19 has also had a major impact on the economy and finances. 

With that in mind, here are 5 retirement planning tips in the age of coronavirus. We’ll talk through how the current situation with coronavirus might affect retirement planning in several different stages of life, from recent graduates to current retirees.

Know thyself

As the ancient Greek philosopher, Socrates said, it’s important to first know thyself. In a turbulent market and economy, you should realize what kind of person you are. If you’re prone to panicking, you’ll want to make sure to not look at your investments. Don’t look at them daily, weekly, monthly or even at all if you think that you won’t be able to handle the stress of seeing all that red on your portfolio balances.

Don’t panic-sell stocks while they’re down

And that leads into the second retirement planning tip — the absolute worst time to sell your stocks is when they have just gone down. You’ll only end up locking in your losses and missing out on the inevitable rebound. The legendary investor Warren Buffet has a famous saying – “Be fearful when others are greedy and greedy when others are fearful”. 

It is difficult if not impossible to time the market and know when stocks will go up or down. If you could tell that with any degree of certainty, you wouldn’t need my tips. Instead, you would be sitting with an 8 figure bank account on the beach, sipping your favorite drink! If looking at the recent losses in your 401k, IRA or other investment account are stressing you out, then take a deep breath and give yourself permission to stop looking at your account statements for a few months.

Make sure you have a diverse portfolio

Another important retirement tip is to make sure that your portfolio has a diverse range of different types of assets: stocks, bonds, cash equivalents, and other asset types. Historically, stocks/equities have provided the best returns, but that only holds true if you are able to take a sufficiently long investment horizon. As we’ve seen especially over the past few months, the stock market can be INCREDIBLY unpredictable! And if the money that you were counting on to live is invested in the stock market, then you might find yourself in a position where you have to sell your stocks at a major loss. With a more diverse portfolio, you can instead liquidate some of your other assets and hold on to your stocks until they rebound.

On a related note, IRAs and other retirement accounts have what is called a “required minimum distribution” (RMD). It states that after a certain age (either 70 ½ or 72 depending on your date of birth), you MUST start withdrawing money from your retirement account. One thing that the government has done to help retirees that might be in this spot as part of the recent coronavirus stimulus bill is that waiving the RMD for 2020. 

Start (or build up) an emergency fund

If you’re closer to starting out on the retirement journey, make sure that you have an emergency fund. If you don’t have an emergency fund at all, you should start by setting aside $1,000 in a separate account in case of an emergency. It’s important to do it in a SEPARATE account than your main account where you keep most of your money. Ideally, you would want it in an account where you don’t have a debit card and that is somewhat hard to access. That helps remove the temptation to “raid” your emergency fund unless it truly IS an emergency.

If getting $1,000 in a separate emergency fund seems like a daunting task, start small with whatever you can. Start putting any and all extra money that you come across into your emergency fund — money you save by not eating out, a bonus at work, coins you find on the ground, or your stimulus check. Once you have a basic emergency fund and as you start paying down your credit card, auto, and other consumer debt, you can gradually build up your emergency fund to 3-6 months of reserves.

Always keep cash reserves

You always want to keep cash reserves if possible. Cash is king, as they say, and nowhere is that more relevant than when the stock market has taken a dive. Another way to approach a 15% downturn in the stock market is to think of it as a 15% sale on stocks. Remember Warren Buffet’s advice to be greedy when others are fearful! But that only works if you have the cash reserves to invest. Again, since it’s very difficult to know if the market is going to rebound or go down more on any given day, a good strategy can be to just regularly invest a portion of your available cash reserves on a regular basis. Either once a week, or on the dips, or at a predetermined time. 

Hopefully, these retirement and other financial planning tips have helped give you some ideas for how to proceed in these turbulent and unprecedented financial times!

Save more, spend smarter, and make your money go further