Co-founder and CEO Money Coaches Canada
As we enter our third pandemic year, it can be tough to plan for the future. Retirement? What’s that? We’re just trying to make it through the day intact! This attitude is completely understandable, especially if your employment or income has been impacted, or your short-term security and immediate bills have become a primary concern. We’re not out of the woods yet, covid will likely continue impacting our finances for a while yet. However, with some forethought and flexible planning, it can be much smoother sailing for those on the brink of retirement.
Taking stock of your current situation and making slight adjustments in the short-term make it much easier to set yourself up for long-term financial success. Here are some tips to ensure your retirement plans are future-ready in the face of COVID.
1. Steady the reins of your cash flow
Isolating at home really put a spotlight on how we spend our time and forced us to get real about activities that mattered to us. Many people subsequently re-evaluated their priorities and realized they could be happy with much less.
It might feel like the markets or the economy have the biggest influence on your well-being in retirement, but your cash flow is critical. It’s wise to look through the lens of your retirement with an eye towards what your cash flow requirements might be over the course of your life.
Months without yoga classes and dinner out revealed the stark difference between a need and a want. This newfound knowledge has been useful and inspiring for folks on the verge of retiring or tentatively planning their retirement because it makes estimating cash flow more realistic and practical.
Try our Spending and Savings Plan worksheet as a starting point to help you clearly focus on what is most important for your lifestyle and where to allocate your dollars.
2. Prioritize savings
Depending on how close you are to retirement, it’s wise to revisit your expectations of when you can retire and/or how much you can spend in your retirement years based on your accumulated savings and other sources of retirement income. The pandemic has been a wake-up call for everyone on the importance of saving for a rainy day, however, it has also left many folks unsure about their next financial step. That’s ok, you’re in good company.
If your income is still intact, one tip to increase your retirement savings is to open a high-interest account specifically for long-term savings, then automatically deposit an appropriate amount each pay so when the pandemic has passed, you can move the money into your RRSP or TFSA. If you already have a healthy emergency fund and little debt, you could consider cautiously investing into the markets.
3. Don’t forget debt repayment
In the throes of a pandemic, short-term needs feel more pressing than planning for the distant future. This is especially true for Canadians who have seen a significant reduction in their income.
Do what you can to keep all debt payments current and try to avoid using high-interest credit cards to finance cash flow shortfalls. It would be better to reduce your expenses, use savings or a line of credit if absolutely necessary.
If your debt repayment goals are derailed through the crisis, do everything you can when you get to the other side to get back on track, with renewed focus and determination.
4. Engage with your investments
The shift from regular life to seemingly endless regional or local shutdowns diminished the agency we feel over our lives. We turn to medical experts to inform us about our health-related choices, and with markets behaving erratically over the past two years we should similarly be informed and involved in our investments.
For example, those with a balanced portfolio of cash, bonds and stocks might be well-positioned for these turbulent times, but the recent market drops may still have you in more knots than you bargained for. If you haven’t already done so, you may want to re-assess your true risk tolerance and rebalance your investment accordingly.
You may find that holding a higher percentage of cash investments has more appeal to you now, even though the returns are low. However, any rebalance needs to take into consideration the fact that a lower rate of return may impact what you can spend in retirement, especially given the relatively high current level of inflation. You’ll need to carefully assess that trade-off.
You don’t necessarily need to manage your own investments, but rather see this as an opportunity to engage with your investment advisor and evaluate whether you have the right investment plan. Check out the investment check-up for some of the considerations covered in our On Your Side Investment Report Card™ evaluations.
5. Take an honest look at your money values
The pandemic’s continuing impact on the world is an opportunity for us to pause and reflect on our attitudes, beliefs and values surrounding money. Many Canadians have been left pondering the role money plays in their life, and view this as the wake-up call many of us need to appreciate how we can make do with a lot less. Others discovered that it isn’t so much how much money they need, but how it can be used in more meaningful ways that align with their personal values.
Perhaps that means making regular donations to their local food bank, or helping out friends or family who have been hard-hit financially. Money can’t make COVID magically disappear, but it’s a tool that can be used for good. Taking stock of how we use our money and being grateful for what we have can truly impact our happiness long after this pandemic has passed.
Choose your choices
Financial trade-offs have been made during the pandemic and will likely continue in some form for many years to come. These choices – perhaps made by you or imposed upon you – may affect plans you already had in place for your retirement, but getting real and taking charge of your money is the way forward. Seizing your finances by the horns feels very steadying in an increasingly uncertain world.
Revising your current retirement plan or making a new one doesn’t have to be difficult, and you don’t have to do it alone. We’re here to help.