These days, older workers and retirees are understandably worried that their retirement plans will be disrupted by the COVID-19 pandemic and the resulting economic downturn.
There are concerns that pre-retirement and recent retirees may have about any economic downturn, and strategies designed to help them cope with multiple financial crises, crises that are inevitable with a long retirement. These strategies are stress tested by the current environment; so far, they are doing pretty well because of the high level of risk-protected retirement income that the strategies can help generate.
80% of older Americans cannot afford to retire – COVID-19 does not help
Read: What Biden’s Platform Means to Americans Over 50
Let’s take a look at five retirement planning mistakes to avoid during the current financial crisis – and, for that matter, any future crisis – and tips for implementing these strategies in today’s environment.
Error no. 1: Too soon to retire
You can significantly increase your ultimate retirement income by delaying your retirement, even for a year or two.
Of course, people who are fired or expelled may not have control over their retirement date. If that describes you, you might be in a tough spot. If possible – and this can be a big one – try to find everyone a job, even part-time work, that can help save time as you begin to benefit from Social Security and start applying for your retirement savings.
If you need money to get started, try to find any other source of money, including any kind of gig work or unemployment benefits (yes, they can be hard to get, but try). If you are fired, ask your employer for severance pay, part-time or contract work, or any other form of assistance they can provide, such as outplacement services or financial advisory services.
Read: Life will never be the same for people after 60 – even if there is a COVID-19 vaccine
Mistake no. 2: Social security starts too soon
It is assumed that you will be fired or fired and you are 62 years or older. You are certainly eligible to start your Social Security benefits, but for most people, starting benefits early would be a mistake. Social security benefits offer significant benefits to retirees: They offer triple protection against common retirement risks: long-term living, stock market crashes, and inflation. And the longer you wait (but not later than age 70), the higher your benefits will be, and the greater protection you will get.
The fact is that most people are financially better off if you apply your retirement savings and any other savings, such as investment accounts or full life insurance, instead of starting your Social Security benefits. That resource should be the last financial resource you tap.
To help you maximize your social security income by delaying the onset of these benefits, you can use your retirement savings to fund a Social Security bridge strategy. This strategy enables retirees to delay Social Security benefits after they reach retirement age. Use a portion of your retirement savings to pay for the Social Security income you would have received if you had started Social Security when you retired. Pay this benefit until you start enjoying the real benefits of Social Security, but do not delay for more than 70 years.
Mistake no. 3: Make quick investment decisions
It is easier to whip up in the fear of stock crashes than the fear of missing out on future stock gains. Both of these fears are very common these days, and they can set you up for unnecessary investment loss and overwhelming mental stress.
Instead of concentrating on your fears, design an investment strategy that allows you to survive the crash of stock markets without knowing when the market may crash. Start by covering your basic cost of living with guaranteed sources of retirement income that will not fall if the stock market crashes. Such resources may include Social Security, pensions if you have one, annuities and reverse mortgage payments.
Then, before you make an investment decision, estimate the share of your total pension income that is protected by risk; for many people, that income may comprise two-thirds, three-quarters, or more of their total retirement income. If the stock is high, you could justify calculating risks by investing in the stock market to generate the rest of your retirement income, which you should use to cover your discretionary living expenses, such as travel, hobbies and jubilation of the grandchildren. These are expenses you could reduce as the stock market declines.
With this strategy, you can ride the ups and downs of the stock market, knowing that you have a reasonable long-term investment strategy.
Read: Has COVID-19 stopped people from early retirement?
Mistake no. 4: Ignore medical insurance
If you retire at age 65, if you are eligible for Medicare, you will need to find health insurance to bridge that gap. Potential sources may include COBRA continuation coverage, insurance coverage, employment that provides coverage, if your partner’s employer. If you are fired, ask your employer if they can continue with health insurance for you for a period of time or if they can extend your qualification for COBRA coverage.
If you are eligible for Medicare, it is important for you to be aware of the substantial deductibility and copy of Medicare. In addition, Medicare does not cover many expenses that are normally covered by employer-sponsored health care plans, such as dental, vision, hearing, acupuncture, and some chiropractic services. As a result, you will need to spend time shopping for health care coverage to supplement Medicare. There are two types of this type of coverage: Medicare supplement plans and Medicare benefit plans. Each type has its pros and cons – do your research to find out what kind of plan is best for you.
Today, more than ever, it is critical to make sure you have the coverage for health care you need to stay healthy.
Mistake no. 5: Give up
It is perfectly understandable to be both intimidated and frustrated by all the challenges you may have, especially regarding finding work when you have been furloughed or fired. It may sound easy to just give up and call yourself retired. Instead, be restless with your networking efforts and updating your skills, including learning how to navigate the virtual world. Maybe research starting a service business. Or try volunteer work – you can make contacts that can lead to paid work.
Also look for ways to keep your spirits up – there’s a good chance you may need them.
I recognize that some of these steps can be easier said than done, but if you find yourself in a less-than-ideal situation, your only option may be to work hard to discover a workable solution. Planning for retirement today requires resourcefulness and resilience. Marshall all your resources – you can do it.
Steve Vernon, FSA, is the author of seven books on retirement planning, including his recent book “Don’t Go Broke in Retirement: A Simple Plan to Build Lifetime Retirement Income.” He is also a researcher at the Stanford Center on Longevity, and president of his retirement education company Rest-of-Life Communications.
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