By Tom Rasmussen, CFP®
Sunny vacations, time on the golf course, more time with grandkids, focusing on your health and relationships, volunteer work. Does this sound familiar? If it does, that is because these were the things retirees or soon-to-be retirees were planning on spending their time on. Then the COVID-19 pandemic wreaked havoc on our lives, and now you may be wondering if you need a retirement plan assessment.
The coronavirus pandemic has obviously caused a great number of people who were planning on retiring soon to reconsider if they should or even can retire when they were planning to. As with any event, it is important to evaluate your retirement plan—right now is no different.
One important thing to remember, however, is that panicking will not help in any way. So conducting a damage assessment of your retirement plan should be done at a time you feel you can think reasonably and without panicking. For some, the findings will not sit well.
What We Know
Even those who do not pay much attention to the market know that we all took a big hit in March when everything started shutting down. So just how bad was it? Let us use some real data (all data presented in this section found on Yahoo! Finance).
January 2nd of this year, the Dow closed at 28,868.80. The year-to-date (YTD) low point was on March 23, when the Dow closed at 18,591.93. I will let you do the exact math, but that is approximately a 35% drop. That is significant and will cause just about anyone to lose sleep over it.
Today, September 2, the Dow closed at 29,100.50. So what does this mean? It means that we are trading at levels close to where we were at the beginning of the year. In nine months, we have seen a 35% nosedive and a subsequent climb back to where we were.
Do Not Panic
As I mentioned earlier, now is not the time to panic. Hopefully, you aren’t feeling quite as panicked as you may have in March and April. One of the most important things our Vancouver- and San Mateo-based wealth management firm regularly tells our clients is to stick to the plan; it is because of events like this that we invest for the long term.
Now is not the time to completely blow up your plan or make any changes that are too extreme one direction or the other. For example, it is not wise to either go all cash or go all growth. It is important to stay within your risk-tolerance barriers and to rebalance as necessary.
Is it necessary to re-evaluate and maybe tweak a few things in your plan? Certainly it is always good to revisit your plan and adjust it as needed. Maybe you didn’t take that $10,000 vacation this year—that is extra money saved. You may consider working for an extra year or two longer to allow for even more contributions into your 401(k) to make up for the possible gains we missed out on this year.
Being rational and meeting with your advisor is critical between making the right and wrong decisions. Your advisor can help guide you through this process.
Regardless of how you choose to assess and address the damage that the COVID-19 pandemic has caused you financially, remember not to panic.
One point to remember is that you still won’t need most of your retirement savings for 20 or 30-plus years as you live in retirement. You won’t need your entire savings on day one. Ideally, you won’t even touch the principal amount of your savings while in retirement or at least for a very long time.
Still, it is important to conduct a damage assessment, and we recommend meeting with your advisor or finding a CERTIFIED FINANCIAL PLANNER™ (CFP®) professional that you feel comfortable with.
Schedule a complimentary meeting with a wealth advisor to discuss your personal situation.