The Coronavirus Retirement Lesson

Posted On 05/08/2020

It’s one of the biggest fears of retirees and of those who are approaching retirement. Will I have the money I need when I need it?

That fear is now all too real.

We may think we should have been smarter and known what was about to happen to the world’s investment markets. Perhaps if we’d only been paying a little more attention we could have moved our savings to safer investments. The truth is no one could have known the dramatic effects that COVID-19 would have on our day to day life.

Here’s some proof.

Past Epidemics

A glance at history showed little reason to think that a pandemic would cause a market meltdown. In this century, SARS (2003), Avian Flu (2006), Swine Flu (2009), MERS (2013) and Zika (2016) all were viewed as a severe health threat. Yet in every case, the S&P 500 recorded double digit percentage gains in the 6 month and 12 month periods that followed.

Early in 2020, even as the Coronavirus was spreading in the U.S., financial headlines often indicated that it posed little threat to our finances.

New China Virus spooks Global Markets but analysts say it may not be as bad as SARS. (CNBC – January 21)
Here’s why the market may be overreacting to the Coronavirus threat. (CNBC – January 27)
How will Coronavirus affect the stock market? It’s risky for health, but probably not your portfolio (The Arizona Republic – February 2)
Why the Stock Market isn’t too worried about Coronavirus. (New York Times – February 20)

What was there to worry about? In late February, three weeks after President Donald Trump’s travel ban to and from China, the Dow Jones Industrial Average was still near its all-time high.

There was little evidence that the bottom was about to drop out. So don’t kick yourself for not ‘knowing’ what would happen. Realize that the markets make extreme moves from time to time, and only when looking back do we think we could have predicted the future.

Have a Plan

In the decade before we retired we met with a “fee only” Certified Financial Planner. It was one of the most important things we did for our future. I believe that you should do this in the final decade before retirement – while there’s still time to make the adjustments needed to achieve your goals.

A key lesson learned from our sessions was the closer you get to retirement, the safer you may want to be with your investments – certainly any funds you need to draw on in the first years.* Our planner explained that we should think of when we would need our money, not simply how much money we would have.

How Bucket #1 Saved Sleepless Nights

It’s now popular to call this the “bucket” approach. You simply use different investment approaches (different buckets) for different periods of your life. The money you’ll need soon, should be in ‘safe’ investment categories – bucket #1. You won’t make much on your investment there, but you shouldn’t lose a lot either. He set us up to invest more aggressively in other buckets that reached further into the future.

Thankfully we followed the advice of our planner.

We settled on a three year time period for our first bucket. We thought that was fairly conservative. There, we have our savings in money market funds and short term certificates of deposit – the safest offerings available in our retirement accounts. I’ve heard of other retirees who chose a five-year time period for this bucket. Still others believe one or two years works best for them.

Whether you’re in Retirement or approaching it, think about your strategy. You want your buckets in place before you retire. And do seek professional advice.

It’s still not an entirely comfortable feeling to see retirement account balances tumble when the market takes a nose dive. But the Coronavirus Retirement lesson that I learned is this – being able to watch what’s happening in the markets without panic-selling our long-term investments, allows us to pay attention to what’s really important.

Staying safe.

I pray you are safe as well.

*As stated elsewhere, I am not a financial planner, and I am not making recommendations for your personal financial decisions. That’s why I recommend that you meet with a “fee only” CFP or similarly qualified investment professional to create your own retirement plan. We receive no compensation for this recommendation.