The unforeseen market volatility caused by the COVID-19 pandemic has posed a series of financial challenges – especially for those planning for retirement. From the uncertain economic and market impacts to possible late-career job losses, it’s normal to be concerned about your financial future.
Whether you are steps away from retirement or a young professional just beginning your career, it’s never too early to start thinking about your retirement plan – in fact, the earlier the better!
In light of these unprecedented times, our team put together the best financial advice for retirement planning.
Avoid Creating More Debt
The ultimate goal for retirement is to be debt free. So, when you begin to set money aside for retirement, you will want to start on a clean slate. Right now, it is especially important to avoid creating more debt for yourself.
To help ease the financial burdens of COVID-19, the Canada Mortgage and Housing Corporation (CMHC) has given homeowners the option to defer mortgage payments. While this may seem financially beneficial, it may only create more debt and reduce your retirement savings.
In other words, you should only defer payments during this time if it is absolutely necessary. If you can afford your expenses during the pandemic – including your mortgage – then it may not be wise to defer your payments and risk creating more debt into your retirement.
Make Budgeting and Saving a Higher Priority
As mentioned in last month’s post, saving money is more important now than ever. To ensure that you achieve your retirement goals, you will need to create a budget and analyze how much money to set aside each month. However, as things may have changed in the last few months, it may be wise to revisit your initial retirement budget and set aside even more money than usual – the more money you can save, the better!
To ensure you are able to contribute more money to your retirement savings, you should cut back on unnecessary expenses. As we discussed last month, you should review your recent debit and credit card statements to see how you are currently spending your money and where you can cut back. Then, you can contribute the money you would normally spend on these expenses to your retirement savings.
You should also open a high interest savings account to store your savings, and eventually move the money into a Registered Retirement Savings Plan (RRSP) or a Tax-Free Savings Account (TFSA), depending on your contribution room.
Plan For Your Health
As we are currently in the midst of a global health pandemic, recognize there is no guarantee that your retirement will be filled with years of good health. It is uncertain how long this global health crisis will last and how it will affect you personally.
You can – and should – choose to pursue a healthy lifestyle and abide by the government’s regulations to help mitigate the spread of COVID-19. This will help reduce the risk of the health concerns and costs associated with COVID-19 into your retirement. However, as there is no guarantee what may happen, you should set aside costs for healthcare in case you or any of your loved ones become affected by COVID-19. Other unexpected health issues may also become a reality in your retirement, so it is important to be financially prepared.
Review Your Investment Strategy
Now is a great opportunity to review your investment strategy with your portfolio manager to see if you have the best options for your retirement savings plan. Market volatility is an obvious retirement concern as there’s no way to predict when a negative return might hit your portfolio.
However, as mentioned in a previous post, people often panic and make irrational financial decisions during market uncertainty. It is important not to panic and to remember that the stock market has a strong history of recovering from downturns. Remember: COVID-19 is not the first global health crisis that has impacted the market.
More often than not, it’s best to stick with your initial planned strategy as markets generally trend upwards over the long term. Regardless, you should consult with your portfolio manager to ensure your retirement savings plan is on track.
We understand this is a difficult time financially, but The RaeLipskie Partnership is here to help.
If you want to speak to a portfolio manager about planning your retirement, contact us today!