Re-Estimating Retirement in an Age of Ambiguity

Written by: Financial Freedom Studio | Jackson

Planning for retirement can feel overwhelming under normal circumstances, but watching the economy take a hit from a global pandemic can make it even harder to navigate through later-life financial planning. The good news? You can still find ways to protect your income in the face of market volatility.

Back to Basics

Before reevaluating your retirement plan, make sure you’ve got your basics covered. It’s easier to think about the future when you’ve got the present under control. We’ve provided short answers to some common questions below, as well as some resources to learn more:

Will my Social Security be impacted? Even though Social Security offices are closed, Social Security payments will still continue as usual, via postal service or direct deposit. Seniors may access services via My Social Security Account or 1-800-772-1213.

How is Medicare going to address healthcare during COVID-19? Doctors and other healthcare providers are now using telehealth services to treat COVID-19 from offices, hospitals, and places of residence (such as homes, nursing homes, and assisted living facilities). Medicare will cover telehealth appointments.

If you have coverage through a Medicare Advantage Plan, you won’t have to pay out-of-pocket costs (also called cost-sharing) for COVID-19 tests.1

Looking Forward: Estimating Retirement Possibilities and Income

The economic impact of COVID-19 can be especially scary if you’re living on a fixed income during retirement. You may be trying to estimate what your retirement income will be going forward, or if you can still afford to retire by your goal date. Here are some guidelines for taking steps toward a new strategy:

This is Not 2008

In attempting to reevaluate your financial plan, comparing this recession to the 2008 crisis may be tempting, but there are some key differences. The COVID-19 recession is considered the first “services recession.” Social distancing practices have depressed activity in the service sector in a way that’s anomalous to most recessions. While recessions are normally characterized by a collapse of investment spending, consumer spending on services – such as eating out or personal care services – typically fluctuates less and actually tends to increase as a share of total spending. In this recession, however, we don’t have that source of economic stability.2

The 2008 recession centered on the financial services sector, while this recession is more closely associated with individuals losing their livelihoods. That means that the government interventions that have been put in place won’t necessarily have the same impact on the economy that they would in an investment-focused recession.

Because a different population is at the center of this recession’s impact, the economy is likely to recover differently than the recession of 2008. Estimates around one’s retirement funds, therefore, should not rely on the recovery following the 2008 recession as a kind of template.

Many “Common Knowledge” Rules of Retirement Are on Hold

While many near-retirees had plans in place for exactly how long they would need to work, and those who are already retired believed their distribution strategy was set, COVID-19 has called all of that into question. Many retirement rules and guidelines that were once taken for granted are now lacking relevance in our COVID reality. A couple examples:

  • For retirees taking a “moderate amount of risk,” the common 4% withdrawal rule has been downgraded to 2.4%, according to retirement experts like Professor Wade Pfau.3
  • While many near-retirees had planned to work until a certain date, their career may have just come to an end due to COVID-related downsizing. Employees near retirement age who have just been laid off face returning to an extraordinarily difficult job market; employers who are stretched thin in the midst of a recession are not likely to take a chance on hiring someone who’s planning on exiting the nine-to-five life soon. For many, this may force an early retirement.

What Does This Mean for Me?

Change Your Spending (and Saving), Not Your Plan

One of the silver linings of the quarantine lifestyle is that staying at home allows you to save money on meals, transportation, and entertainment. This drop in recreation and leisure activities can provide some cushion to your retirement budget.

You can also use this time to look into savings accounts that have a better interest rate than you are earning on your current savings. The Federal Reserve’s interest rate cut is likely to lead to lower interest rates on savings accounts, but there are some options for making the most of your savings. Online savings accounts can often offer a good alternative to the traditional savings account and are still FDIC-insured.4 If you won’t need your savings in the immediate future, you can also park your money in a certificate of deposit (CD). Just make sure you have enough cash or other income through Social Security or your pension to keep you from needing to access your CD early.

Ask Your Advisor – Not the Internet – What Steps You Should Take Next

This is a key time to depend on your advisor for clarity. Before having a check-in, prepare some discussion points that will help you determine next steps. Some key questions may include the following:

  • Can I still retire by my goal date?
  • Should I be delaying my withdrawals at this point?
  • Should I reassess my risk tolerance?
  • Is this a buying opportunity?
  • What types of federal assistance should I be considering?

Before meeting with your advisor, take a moment to refresh yourself on the expenses you were anticipating in retirement. Jackson’s Retirement Calculator can make it easy to project the income you may need in the future, depending on when you plan to retire. Going into the conversation with your advisor armed with this knowledge can save you both some time, so that you can make the most of your meeting. The markets may be uncertain, but you can take control of your role in the journey toward a long-term retirement strategy by taking these factors into account.

1. “Is my test, item, or service covered?” Telehealth Insurance Coverage, June 26, 2020.

2. “The COVID-19 epidemic will be the first services recession and it could be a bad one,” Gabriel Mathy, American University, March 16, 2020.

3. “Wade Pfau: Pandemic Tears Up 4% Rule,” The American College of Financial Services, April 14, 2020.

4. “Winners and losers from the Fed’s emergency rate cut,” Bankrate, March 15, 2020.

Related: Making the Most of Your Retirement With an Informed Income Strategy