There has been a lot of press around the economic shutdown due to COVID-19 and the related stock market volatility. However, the S&P 500 just finished one of the best quarters in over a decade¹ even though there remains significant uncertainty about the future. Perhaps it is time to see what the financial impact is on individual investors, especially those in or approaching retirement.
A survey from Allianz Life Insurance Company finds that half of Americans retired earlier than they expected this year. A majority of respondents said that they did so for reasons outside of their control, with 34% citing job loss and 25% health-care issues.²
The other half may be forced to work longer than they had planned to play catch-up in their investments.
Retirement planning analysis shows that, if in the first year of retirement, the stock market is significantly positive, then your probability of success as measured by Monte Carlo simulations is good. Using all of the same facts around income, assets and longevity, if, in the first year of retirement, the stock market is negative, your success probability drops. This may cause some people to push their retirement out further to give them time to add more to their 401(k) and allow it the possibility to grow for several more years.
Folks entering retirement early in 2020, who came off of a double-digit gain in investment returns in 2019, may be in for a big surprise if they take another look at their projections. For those being forced to leave employment, they may look to other resources, such as collecting from pensions, Social Security or annuities earlier than planned. This often has a double-whammy by not only taking distributions early but locking in lower income for life.
Those who wish to work longer may have another set of challenges ahead. With higher unemployment rates, younger workers willing to earn less may be vying for your job. Also, the ability to expect raises and continue benefits beyond age 65 may be difficult.
Stock market fluctuations make headline news, but the concern for many retirees is the low interest rate yield on their fixed income assets. It seems ironic that when you save your whole life and take your assets and want to replace growth with income, that both the value of your accounts and your expected return could be down at the same time.
These are all reasons to have a current, objective retirement and tax plan in place before making decisions that could affect you for the next 30 or more years. It can be unsettling to know you are at a point where you can no longer add to your nest egg and instead you will start depleting it.
Many of the old rules will still apply in order to help stretch your money for as long as possible. Proper asset allocation is still very important. It’s also important to consider not relying on just fixed income investments; we believe there needs to be long-term growth on a portion of the portfolio for the future. Managing risk and expectations also remains important throughout retirement. This helps you stick to your plan so you stay on track.
Managing where your distributions will come from and how to plan for taxes can also help your assets last longer. It is important to keep the big picture in mind, even when making short-term decisions. Look for a fiduciary who can guide you along the path of uncertainty. They can keep you up on programs designed to help you along the way, such as the Secure Act and the CARES Act, and how to utilize resources for your benefit.
Retirement should be something to look forward to — make sure you are prepared and informed.
1. Morningstar: S&P 500 highest in Q2, 2020 since Q4 1998; 2. Retirement Confidence Survey, April 23, 2020
The S&P 500 Index is a market-value weighted index provided by Standard & Poor’s and is comprised of 500 companies chosen for market size and industry group representation. Individuals cannot invest directly in an index.
Patricia Kummer has been a Certified Financial Planner and a fiduciary for over 30 years and is Managing Director for Mariner, LLC d/b/a Mariner Wealth Advisors, an SEC Registered Investment Adviser. Please visit www.marinerwealthadvisors.com for more information or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). Securities offered through MSEC, LLC, Member FINRA & SIPC, 5700 W. 112th Suite 500, Overland Park, KS 66211.