There’s no doubt we’re in uncharted territory.
Not only has Coronavirus Covid-19 affected communities around the world, but it’s also drastically impacted the market…and likely your retirement plan savings too. Economically, this is an unusual time. With so much misinformation swirling around the web, the VestCred team wants to give you information about how Covid-19 and a looming recession could impact your retirement savings.
We asked Dave, our co-founder and expert wealth advisor, a few questions that are on all of our minds right now.
What are most people being advised to do about their retirement savings strategy right now?
You’re going to read and hear “stay the course” from Wall Street and most financial advisors. The “stay-the-course” strategy means people will continue investing their retirement savings in exactly the same way as they always have – focusing on pre-retirement savings accumulation. And that’s the outcome Wall Street wants. It’s good for Wall Street’s bottom line. But not so good for everyone else.
Why isn’t this retirement savings strategy ideal for everyone?
People are scared because the bottom is falling out of the market. And Wall Street is telling them if they “stay the course,” keep investing just as they always have, it will turn out okay when they reach retirement.
But this “kick-the-can-down-the-road” approach has a potentially fatal weakness. Time-jump to when you’re six months away from retirement. The market has rebounded and your retirement account has grown. But now, just six months away from retirement, what if something entirely different than Covid-19 shows up, the market plummets, and it’s 2008 or 2020 all over again and your retirement account loses 39% of its value (as the market did in 2008 and may again in 2020).
For most people, that would mean their retirement would be delayed years if not a decade. That’s exactly what happened to people in 2008.
What are my retirement savings options if I’d prefer to not have to deal with wild market swings anymore?
VestCred has another approach. First, if retirement is far away, leave the money already invested in your IRA and 401(k) alone. Experience tells us the market will rebound. However, if retirement is near, consult with a financial advisor about “waiting it out” or “going to cash” for some or all of your retirement accounts. That decision needs expert advice based on your unique circumstances.
And with new contributions? With new current and future savings that you still need to invest to make your retirement a reality, do something much better than “kicking-the-can-down-the-road” with the same strategy that has you panicked today. Because doing the same thing and hoping the market doesn’t plummet again just before, or after, you retire won’t give you peace of mind. Hope is not an effective strategy.
For those who qualify, VestCred recommends…
- Don’t make any extreme decisions without careful consideration.
- Review your strategy from the perspective of ‘net retirement income’ – your retirement income after-taxes.
- Talk with an advisor about all of your retirement savings plan options. Talk with us if you’d like a perspective you likely won’t hear from them.