The COVID-19 pandemic hit hard in early 2020, and it continues to remain prevalent as we near the end of the year. Whether you’ve just recently retired, or it’s coming up in the next few years, it’s likely the virus has brought about some financial uncertainty regarding your readiness for retirement. Before making any sudden changes, it’s important to remain rational and avoid these five big retirement mistakes below.
Mistake #1: Neglecting Your Emergency Fund
No word describes 2020 better than “unexpected.” Therefore, it should come as no surprise that preparing for the unexpected sits at the top of our list. When times get tough, it can be tempting to forego or forget important financial habits - like padding your emergency fund. If your income has been affected by COVID-19, you may be struggling to make ends meet for the time being. But that doesn’t mean adding to your emergency fund should be the first thing to go. A little preparation now can go a long way when the unexpected does hit. From a health emergency to car repairs, you never know what surprises may come your way in retirement.
Mistake #2: Making Unnecessary Withdrawals
Withdrawing from any retirement accounts early could mean big tax penalties and reduce your available retirement funds. Any money you withdraw from an RRSP or RRIF will be subject to tax according to your 2020 income. And to avoid robbing your future retirement, you’ll want to develop a plan to replace that lost income in the coming years. If you’re struggling to cover your expenses amidst the pandemic, talk to your financial advisor about other options you may want to take first. Look into relief programs offered by our government, establish a line of credit against your home for short term needs, tap into your emergency fund, and of course reevaluate your budget and spending.
Mistake #3: Making Emotionally-Driven Investment Decisions
Nobody can go a day without hearing the word “coronavirus.” From social media posts to advertisements and news outlets, there’s no escaping the pandemic. COVID-19 aside, other big news stories are hard to avoid as well - the upcoming US election, the increasing unemployment claims, the stock market rising and falling, etc.
After absorbing info day in and day out, it’s nearly impossible to not let it affect your decisions about money. Should you drain your portfolio and stuff it under the mattress? Do you need to look at rebalancing assets amidst this market volatility? Working with an investment advisor can bring an objective, scientific and education-based perspective to the question of what to do with your assets. Together you can focus less on the world around you and more on your individual goals as you head into retirement.
Mistake #4: Forgetting to Reassess Your Current Budget
Have things changed since you last made your monthly budget? Maybe you used to commute to work, and now you’re working remotely. Or you used to spend every Friday at happy hour with friends, now you enjoy a quiet evening at home. It’s very likely that your daily habits, and what you spend money on, have been affected by the pandemic.
In many cases, this could be good news. You’re spending less on gas or commuter passes, travel and vacation, eating out, gyms and more. Reevaluate what your spending has been like over the past several months and determine if there are any opportunities to put more toward your retirement savings. Depending on your timeline towards retirement, an extra couple of thousand in savings this year could grow significantly over the coming years.
Mistake #5: Ignoring Legislative Changes
There have been announcements almost daily about various government programs to assist Canadians in certain situations, with CERB for individuals and small businesses, and additonal income for those on OAS. In addition, legislation reduced the miniumum required withdrawal from RRIFs for 2020. If you don’t need this money to make ends meet, leave it invested for better potential growth. Plus, your tax obligation will be lower without this RIF withdrawal.
If the pandemic has created some cause for concern when it comes to your retirement, or your plans for retirement, don’t hesitate to reach out to us!. We work with retirees and pre-retirees to develop retirement strategies and determine if things need to be adjusted, During Ontario's state of emergency, our joint advisor team is available by phone, email, and video-chat. It's another way that we are here for you.
- Elaine Kelly, MBA CFP, FCSI, Senior Investment Advisor, Manulife Securities Incorporated
- David Wyatt, BA, B.Comm, CFP, Senior Investment Advisor, Manulife Securities Incorporated
- Katlin Wyatt, BA, Investment Advisor, Manulife Securities Incorporated
- Diana Kancko, Executive Assistant, Manulife Securities Incorporated
- Terry Wyatt, Executive Assistant, Manulife Securities Incorporated
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.