COVID-19: Three things retirees should do right now
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In the end, it wasn’t the drought, the bushfires or even disappointing business results that caused it.
After months of us flagging that global share markets were overvalued, they have fallen more than 20% since their highs in mid-February.
It was the coronavirus disease. It’s highly contagious, spreading fast and we don’t know when it will end.
It’s a scary time and there’s lot of uncertainty. Unfortunately, share markets hate that uncertainty.
There will be an economic slowdown
There’s likely to be an economic slowdown here in Australia and overseas.
People are staying at home, countries are closing their borders, global economic trade is stalling, and oil and other commodity prices have crashed.
Governments have responded, stimulating the economy with monetary policy (interest rate reductions) and fiscal policy (cash injections). Despite this, it is looking increasingly likely that Australia will face its first economic recession in close to 30 years.
But this will pass
If you’re a retiree your next moves are important because in time, this will all pass. The global economy will resume its growth trajectory and the share markets will recover and surpass their previous highs.
We need to make sure retirees have enough of their capital base remaining after this is all over. That’s how they will participate in the recovery.
Here are three things retirees should do right now.
Ignore the false platitudes
The call centres at financial institutions will follow a well-worn script encouraging you to just settle down. They’ll try to reassure you that you’re a long-term investor and that you shouldn’t be concerned with short-term volatility.
The trouble with platitudes is that they’re generally true for most people but they’re rarely true in particular circumstances.
Retirement is different, so well-worn statements like ’time in not timing’ and ‘be greedy when others are fearful’ are at best unhelpful and at worst misleading.
The fact is as a retiree, you’re both a long-term investor and a short-term investor at the same time. At a time when interest rates are at historic lows it’s impossible to live off your income from investments and wait it out.
As a retiree, you should be concerned about short-term capital falls because you don’t want to sell quality investments just to live when prices are depressed. That’s how you destroy your nest egg.
Review your expenditure plans
Where possible, retirees should aim to live off any short-term money they’ve set aside for a rainy day. We don’t know how long this bear market will last, so retirees should be cautious with expenditure right now. The more growth assets we can leave aside ready for a share market resurgence, the better.
The good news is that you have some control over your expenditure. Research shows that most of us can differentiate between our financial needs and our discretionary wants.
Now is a great time to be cautious with discretionary expenditure. For example, if you were planning a car upgrade or kitchen renovation, it may be prudent to defer that for a year or two.
Meet with your adviser now
It’s time to meet with your adviser to check on your progress to plan. It may feel confronting to look at your money right now, but it’s by engaging that you will make better decisions and feel more secure.
Don’t wait a month or two. See your adviser now. You shouldn’t have to wait for an appointment. If you’ve been paying for a financial adviser’s services, then they have a legal responsibility to remain accessible to their clients.
Or come and speak with us. The fact is, we will all get through this pandemic, the share market drop, and the economic slowdown. We want you to make the right decisions now so you can participate in the recovery.
At When Financial Solutions we remain accessible to our clients. We limit the number of clients per adviser, so you can speak to us when you need to. With us, it’s not a matter of ‘if’ you make the right financial decisions during times of uncertainty, but ‘when’.
Michael Bowman and James McMaster are co-founders of When Financial Solutions