How to Be Resilient in Retirement
I get that your anxiety is currently at an all-time high. But, as we begin to slowly and patiently recover from the COVID-19 pandemic, it’s time to refocus on retirement.
Retirement can be a touchy topic for some of us. But, even before the pandemic, there was a retirement crisis. Unfortunately, it’s only gotten worse.
As an effect of the COVID crisis, 37.4% of people between 45 and 64 have either lost their jobs or at least some of their income. Additionally, 36.4% of Americans who are within 20 years of retirement now expect to delay their retirement. And, most concerning, 52% of people report that they will have to dip into their long-term savings within the next year or so.
“There’s a misconception that older adults are asset-rich, yet the reality is that the vast majority—80 percent—are financially struggling now or are at risk of falling into economic insecurity as they age, “note the authors of a May 2020 issue brief on financial security among U.S. aging adults released by the National Council on Aging and the LeadingAge LTSS Center @UMass Boston. “While the financial situation for older Americans may be difficult today, our analysis suggests things may be getting worse. Ninety percent of older households experienced decreases in income and net value of wealth between 2014 and 2016.”
It’s not all doom and gloom, though. An astounding 72% of respondents of one survey claim that the pandemic hasn’t changed their retirement plans.
Regardless if the pandemic has impacted your retirement or not, the fact is you never know when you’ll have a financial setback. The good news? If you prepare yourself now, you’ll be able to bounce back seamlessly.
With that said, here’s how you can be resilient in retirement.
1. Revisit your retirement contributions and investment allocation.
“In situations where income and expenses suddenly seem out of whack, many people freeze or cut back on contributions to their retirement accounts,” state Fidelity Viewpoints. “When things get back to normal, one of the simplest actions you can take—restarting your contributions—can make a big impact. Remember, even 1% can make a difference over time.”
A good rule of thumb would be to contribute at least enough to receive any company matching. “This is like free money into your 401(k),” they add. “In some cases, employers have temporarily halted the employer match.” If you are able, continue contributing to your workplace retirement plan while this occurs.
“A lot of people like the fact that 401(k)s are ‘automatic savings’ programs—set it and forget it. Money goes directly into their workplace savings accounts every paycheck,” the authors add. “And if by any chance you can increase your contributions, or if you’re in a position to try to contribute more to ‘make up’ for stopped contributions, even better.” But, of course, the first step is to start contributing again, at whatever level is reasonable for your budget.
As one might expect, there was considerable anger when the market plunged 11% on a single day in March 2020. They pulled all of their money out of the market, sold stock at low prices, or switched their investment strategy entirely.
But what about those who remained calm and didn’t react? For the most part, the markets, as well as 401(k) account balances, have recovered. However, those who haven’t participated in the market may want to seek help to get back on board with the right asset allocation and risk management guardrails.
How to get back on track.
“To start, try to gradually ramp up your contributions until you hit 15% of your income (this includes any employer contribution), a level that should set you on a course to help maintain your lifestyle in retirement,” they advise. “If your circumstances, goals, time horizon, or tolerance for market risk have changed, consider working with” a trusted “advisor to help rebalance your portfolio if needed.”
2. Replenish your savings.
It’s been said that 46 million Americans wiped out their emergency savings, with 33% dipping into their retirement funds. If you’re in this camp, then you’ll want to rebuild your savings as soon as you can. While that may sound daunting right now, here are some pointers to consider;
- Set an attainable goal. Let’s say that you had six months worth of expenses set aside. You may want to replenish those savings. But that’s a lot of money to save. So start small, with a goal like $1,000, and work your way up.
- Review your budget. Hopefully, you’ve already created a budget. If not, now is the best time. You can use this to reduce unnecessary expenses.
- Find an additional income stream. Whether it’s selling items you no longer use or picking up a side hustle; this extra cash could be put back into your savings.
- Focus on your 401(k). If you took a loan from your 401(k), you have to pay that back, plus interest, within 5 years. So pay this off as soon as possible.
- Find free money. Yes. You can boost your savings without extra money via employer matching or rolling over a 401(k) from a previous job. There’s also a catch-up contribution for retirement accounts in 2020 and 2021. This lets people 50 and older invest an additional $6,500 toward 401(k)s, and $1,000 towards IRAs
3. Define financial emergency.
I get that you want to book that dream vacation or drop over a grand on a new phone. But, those are not financial emergencies.
Job loss, medical/dental emergencies, and home/auto repairs. Those are financial emergencies. It goes with a sudden movie, unanticipated travel, or funeral costs.
Knowing what constitutes a financial emergency is crucial going forward. Knowing this will prevent you from making a costly mistake, such as putting yourself into credit card debt or draining your savings.
4. Keep on truckin’.
According to a recent study called “The Power of Working Longer,” delaying retirement and working longer is one of the best ways to improve your standard of living after retirement. And, it can even be more helpful than upping your savings rate.
If you can delay claiming Social Security, you can qualify for a larger monthly check later on. For example, by putting off Social Security annually between 62 and 70, you can increase your benefit by 7% to 8%. Also, if you earn more money during those extra years of work, the amount you receive could increase even further. In fact, your payout may increase by 20% to 25%.
Another reason to keep working? This gives you more time to stash away for retirement. And, that also means that you aren’t relying on your savings to live off.
What if you aren’t able to stay at your current job? You may want to finally turn a hobby into a lean, mean money-making machine. Or, consider a part-time gig like food delivery or watching your grandkids.
5. Be flexible and resourceful.
You may not be able to catch up on lost time if you’ve fallen terribly behind with your retirement planning. Therefore, you should be prepared to examine other means of securing your retirement.
To start, consider finding additional income sources other than Social Security and your savings. For example, if you’re a homeowner, you could take out a reverse mortgage or rent a spare room on Airbnb. Or, you could sell your home and move into something that’s smaller and less expensive.
I’ve already mentioned this before. But, if you to generate an additional income to supplement your Social Security, find a part-time job. A source like RetiredBrains and RetirementJobs.com is a great place to find job opportunities if you’re older or retired.
Or, you could go all out and relocated somewhere with lower living costs. Sperling’s Best Places site has a handy cost of living calculator you can use to narrow down your options.
6. Build up your risk tolerance.
This isn’t advised if you’re approaching or already in retirement. But, for younger investors who have time to make up potential losses, this is worth exploring. For example, take a good, hard look at an index-linked annuity. Under these contracts, an insurer guarantees a minimum income while the potential for increases depends on the performance of an index.
7. Optimize your portfolio for a passive income.
“Passive income gets a lot of attention these days, and it exists as a dream for many—both as a way to increase your total revenue and build wealth faster and as a way to fund your retirement,” writes Peter Daisyme in a previous Due article. “The idea behind it is simple. Create income sources that don’t require much (if any) ongoing upkeep and keep them running indefinitely.”
“Over time, you’ll accumulate money passively without continuous effort,” adds Peter. “You can also use that money to fund further passive income strategies or pay for your basic living expenses.”
How exactly can you achieve this? Peter suggests;
- Starting an income-generating business that sells products on marketplace websites.
- Investing in dividend-paying stocks.
- Purchasing rental properties.
- Launching a blog.
- Creating a mobile app.
- Selling content, such as stock photography or courses.
Just note that it will take an initial time and financial investment upfront. But, eventually, a passive income will diverse your income stream, accumulate wealth, and secure a retirement income.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.