By Karin Mizgala, co-founder and CEO Money Coaches Canada
These are disquieting times. The way we live has been upended. For many Canadians, after their physical health, their financial well-being has been top-of-mind. And while many financial investments have bounced back from the shock they took earlier in the year, uncertainty is still with us.
This is especially true for retirees who are already drawing from their investments. At a time when they thought they would be travelling and pursuing personal goals, many find themselves feeling anxious and financially vulnerable.
But like in any stressful situation, it’s good to take a deep breath, look at the whole picture and take focussed action when and where possible.
It may feel like the oft given advice; “hold tight, investing is a long game,” doesn’t apply if you are already retired and using your investments, but I would counter, that depending on your age, the time horizon for a portfolio is still long.
So take that deep breath, and let’s consider four steps you can take to adapt to new circumstances.
1. Take action from facts, not fear
A lot of retirees are suffering in silence and in denial. In some cases they’re too afraid to look at their statements and to reach out to their advisors for context, reassurance or new strategies. Others are blaming advisors for not anticipating or reacting quickly enough to market downturns. While both are understandable emotional reactions during times of severe stress, neither is helpful.
Retirees need to operate from facts not fear and to work together with trusted advisors. COVID-19 has forced a lot of us to re-evaluate our priorities including financial ones. It’s a good time to revisit your financial plan on the basis of what is meaningful for me now, how much is enough and what kind of legacy do I want to leave?
Once people talk it out, understand the numbers and know what they’re dealing with, they can usually make necessary adjustments. It’s the not knowing that’s hard. And we have a lot of not knowing with COVID-19.
2. Revisit your expenses through a values lens
Tally up the cost of your necessities like food, shelter, transportation, medications, etc. You may find that most of those expenses can be covered by government pensions, which can be very reassuring.
Now take a look at your discretionary spending through the values lens of what is meaningful to you. Most of my clients are spending less on entertainment, dining out and travel and many of them say they miss those things far less than they would have thought.
As we have let go of the busyness of our pre-COVID lifestyles, many Canadians have found a new appreciation for life’s simple pleasures and are enjoying time at home. Use this opportunity to re-evaluate old assumptions about what you need to be happy.
I have had more discussions with clients about philanthropy and charitable giving in recent months than ever before. One client in particular mentioned that she was donating her $300 COVID OAS payment to charity and several others have been inspired to donate a larger portion of their income and wealth as a result of COVID-19.
3. Take out less from your portfolio now
If you can reduce your expenses, or if you have available cash, it may make sense to withdraw less from your portfolio for as long as you can. The government is aiding on this front by lowering the minimum RIF withdrawals this year by 25%. A side benefit is that you will pay less tax.
If you do need to make withdrawals, try to limit them to the income from dividends or interest from non-registered accounts, leaving the capital untouched.
4. Review and optimize your portfolio
If you haven’t done so already, check-in with your advisor. Now is a good time to assess what your true risk tolerance is; it has likely changed from when you were employed.
Consider how your portfolio has fared relative to the markets? Better or worse? Are you happy with how communicative your advisor has or has not been over the last few months? If you’re not comfortable with the service or answers you’re getting you might want to get a 2nd opinion on your portfolio from an advice-only financial planner.
What about the people nearing retirement when the pandemic began, should they go ahead as planned?
The transition from employment to retirement is stressful and challenging in the best of times. Given the current economic uncertainty, I anticipate that some people may decide to delay their retirement and others will see COVID-19 as a reminder that life is short and retire sooner.
We have always recommended that anyone contemplating retirement in the near term has 2-3 years of cash or short term bond holdings. It’s not prudent to retire without a solid cash cushion and to retire with debt – especially now.
But each situation is entirely different, and should be discussed with a trusted advisor.
I want to pass my business on to my kids, but because of COVID-19, I don’t know if that business will survive. What should I do?
First, talk to your kids to find out how invested they are in keeping the business alive. If this is more your dream than theirs, it may be time to let go. But if they want this as much as you do, then it’s time to talk to professional advisors to consider all the options, including government aid.
It may be time to rethink your business model by finding new ways to connect with customers and to deliver the product. Many companies, one example being Ottawa-based Shopify, forced to switch to remote work when the pandemic began, intend to continue doing so even when it is no longer required. Innovation is all around, look to see what others in your field are doing to pivot and survive.
One thing not to do; don’t allow the dream of keeping the business open become a drain on the resources planned for your retirement.
It’s more critical than ever to have a detailed and updated retirement plan. The plan you made just a year ago may not be the best one now. There is still a lot of uncertainty ahead. Talk through different scenarios with your advisor. Perhaps you will need to re-evaluate how much is enough to live in a way that is meaningful to you.
Consider the legacy you want to leave. Your goals may still be very possible, or perhaps you’ll have to make some adjustments. The best thing you can do is understand the numbers and know what you are dealing with. Knowledge is power.
If you need help we’re here.