Is the coronavirus-induced bear market reason to delay retirement? Some financial experts and commentators suggest Baby Boomers may be forced to set back their retirement by up to five years because of the effect lower stock prices have on retirement nest eggs.
But it really depends on personal circumstances and aspirations.
The good news is those with Defined Benefit (DB) pensions may not have to delay Retirement at all: “So long as the pension plan is healthy and well-funded, their retirement plan should remain intact,” says Aaron Hector, vice-president of Calgary-based Doherty & Bryant Financial Strategists.
However, those counting on their own nest eggs to fund retirement “have more reason to be concerned,” Hector cautions. “Valuations have fallen and some companies will be forced to reduce or cut their dividends, which will put a damper on income sources. For them, it would come down to whether or not they had previously built up an adequate cushion to allow for this market correction.”
Fee-only financial planner Robb Engen, of the Boomer & Echo blog, says, “There’s no doubt investors nearing retirement have been impacted by the COVID-19 crisis.” But long-term investors should have always been prepared for 10% to 20% drops in portfolio value any given year, which is why Engen continues to recommend a safety cushion that includes a couple years’ worth of cash, three to five years’ worth of basic living expenses in laddered GICs, and the rest in a risk-appropriate investment portfolio.
Engen sees three benefits to postponing retirement: more time to earn and save; fewer years of drawing down on portfolios; and stock investments have more time to recover their value.
The traditional thinking that the nearer one is to retirement, the more conservative a portfolio should be has proved to be good advice, at least in the current environment, Hector says: “The nearer you are to retirement, the less time you have to make adjustments to your financial plan, so you want to begin to build in that element of safety so plans don’t get derailed.”
My own advisor says clients over 60 should be no more than 40% invested in equities. If you’re in the Retirement Risk Zone, the old rule of thumb that fixed income should equal your age is not out of line. By that rule, I should be two thirds in fixed income and only a third in stocks.