A bear market can wreak havoc with retirement plans. Luckily, people who won’t retire for many years or decades can usually just ride out the low until the market recovers. However, people who are closer to retirement may feel the pressure of a bear market very differently. Understandably, many people about to retire are panicking due to the economic repercussions of the coronavirus. As a result, some people may be thinking about changing their retirement plans, especially if they have lost their job or seen reductions in income. They may consider delaying their retirement a few more years.
Here are some important points to consider if you’re wondering whether you should change your retirement plans right now:
Funding retirement requires much more than Social Security for most people. You’ll need to consider the state of your other retirement accounts. Keep in mind that Social Security covers up to 40 percent of your pre-retirement income, and the rest should come from investments. In addition, when you’re retired, you’ll need to be conservative with your withdrawals to ensure you do not run out of money. Traditionally, retirees are advised to withdraw about 4 percent of the total value of their accounts every year. However, in a bear market, your accounts will take a hit, so you should stick closer to 3 percent, at least in the first few years after you retire. If you feel like you cannot make ends meet with this percentage, you may want to continue working.
Some people may be playing with the idea of retirement simply because of their age, although they aren’t sure if they’re ready to leave the workforce. If this applies to you, you may want to consider working longer and saving more, or at least waiting until the market recovers to some extent before leaving your job. If you have steady work, consider yourself lucky, especially during the current pandemic, although unemployment rates often increase in any bear market. Often, people are best served by staying in the workforce, if at all possible. If you have lost your job, think critically about the likelihood of getting another one. If employment is a possibility, it could pay to look for different work. Otherwise, you may need to be more strategic.
Before retiring, people often think about their retirement accounts in terms of their ability to exit the workforce. During a bear market, you also need to think about liquidity. Bear markets often bring a significant amount of volatility to the stock market. People retiring in the current climate may need to rely more heavily on cash than they would in other market conditions. Using cash means leaving investments alone so that they can recover when the market does. Ideally, you would avoid selling your investments at a loss by relying more heavily on liquid assets. Selling investments at a loss locks those losses in and increases your risk of running out of money down the line.
Public pension plans in the United States have been troubled for several years. Many of these plans have a gap between what they owe retirees and what they are able to pay. These plans have become a sort of ticking time bomb, and the situation has only become worse because of the coronavirus. People who are depending on a pension to cover their expenses may need to consider strengthening their other forms of savings as a backup plan. Retirees who depend on these plans may be caught off guard if they don’t figure out some other potential source of income. Often, speaking to an expert is the best way to figure out how to move forward when relying on a pension.
One of the biggest issues for retirees is health insurance. Prior to retiring, the vast majority of people get their health insurance from their employers. Retiring means giving up this policy and perhaps losing some important aspects of coverage. Before retiring, you need to think about how your health insurance will change and if you can afford the coverage you need. If you’re 65 or older, you can qualify for Medicare, but the coverage offered is typically not as comprehensive as private plans. As a result, you’ll often need to pay for supplementary insurance on top of the premiums for Medicare. If you don’t qualify for Medicare, you will need to purchase private insurance, which can be quite expensive without an employer contributing to the costs. Some people may qualify for subsidies on state exchanges, but again, these plans are often less comprehensive than employer-sponsored options.