JUST PLAIN TALK: Retirement planning and the pandemic
The news of effective COVID-19 vaccines being widely available by the middle of next year bodes well for Americans and our economy. We should still be cautiously optimistic. Until the vaccines are widely distributed, no one knows potential side-effects. Vaccines don't save lives; vaccinations do.
The antivax, aka fruitcake, lobby will bang the drum with little regard to facts. My recent flu vaccine was a piece of cake, but the first dose of the shingles vaccine left my arm sore for a couple of days. People can have different reactions to the immunization. With an effective vaccine or not, Christine Benz, Morningstar's director of personal finance, argues the pandemic will have lasting implications for retirement planning.
For the first time in half a century, the joblessness for workers over age 50 is higher than younger counterparts. Older workers have always had a more challenging time finding a new job and may face early retirement unexpectedly.
Like Bruce Springsteen's foreman said in "My Hometown," many jobs are gone and won't be coming back. In some cases, employers know they can pay younger workers less, a situation exacerbated by the pandemic.
Steve Vernon, author of "Don't Go Broke Retirement," points out in some situations, it may make sense to use retirement assets for living expenses versus taking Social Security early. Every year you delay Social Security, your benefit increases 8 percent, guaranteed. Show me a guaranteed 8 percent return; I'll wait.
Medicare enrollees should evaluate their options every year. Kaiser Family Foundation found that almost 60% of Medicare enrollees fail to review their coverage annually, including 25% who completely blow it off. It is essential to evaluate Part D drug coverage and Advantage plans. Drug coverage changes every year, and Advantage plans can drop healthcare providers from their networks at any time. Always insist on in-network coverage. Have someone write "Network Coverage Only" on the hospital room's whiteboard. Expect higher inflation for medical costs during retirement.
For the foreseeable future, expect lower yields on fixed income-bonds, bond funds, CDs, money market funds, and savings accounts. Americans have never seen a perfect retirement storm with low yields on fixed-income investments coupled with high stock valuations. Chasing higher yields on fixed income could be a big mistake.
Warren Buffett once said you never know who is swimming naked until the tide goes out. You may get caught with your financial derriere hanging out. Ryan Barrows with Vanguard Financial Advisor Services thinks the best way to combat low fixed income returns may be to crank up your savings.
Most Americans don't have enough set aside for emergencies. Pew Research found roughly half of American households had sufficient reserves for a three-month layoff or sickness. Not unexpectedly, lower-income workers fared much worse.
While vaccines are a light at the end of the tunnel, rising infection rates point to darker times ahead. Stay safe, wear a mask.
You can't always get what you want, but Buz Livingston, CFP, can help you figure out what you need. For specific advice, visit livingstonfinancial.net or drop by, masked, 2050 West County Highway 30A, M1 Suite 230.