Coronavirus financial impact to retirees and near retirees
Hundreds of thousands of people across the word have been diagnosed with Coronavirus and tens of thousands have died. Economic activity has “fallen” off a cliff. Anyone that is retired or close to retiring may be impacted even more so than others; if that is possible.
While time will tell whether we as a country overreacted by shutting down the economy (and the resulting millions of job losses that decision created), the fact is that anyone near or in retirement does not have that time. Instead, what they are faced with right now is a plunging stock as well as bond market, zero percent interest rates, and job loss as well as lack of hiring.
Impact to retirees and those near to retirement
Lets go through the 3 big impacts. One of them alone would have dire consequences, instead all 3 have occurred at the same time. The coronavirus has been the “triple” whammy for retirees and anyone considering it or near it.
First, the stock, bond, and financial markets have plunged and are not even functioning correctly. Stocks are down 30% percent, which can devastate the portfolio of someone near retirement. Not only that, but the bond market has also collapsed. Municipal bonds, high yield debt, corporate bonds and everything else has sold off too. Dividend and “safe” investments and stocks have sold off, with some dividends being cut as well which will hurt a retirees income.
If someone has been saving for years and/or decades, then as they get within a few years of retiring, their net worth has been cut almost in half. It can put off the plans for retirement. Whether markets and bonds go up again in months (or years), regardless when your net worth is cut by a third or half, it is hard to recover from financially.
Second, short term interest rates (as set by the federal reserve) have been slashed to zero percent. This means that interest bearing investments, such as CD, Savings Accounts, or Money Market Funds are now paying close to if not zero percent interest. Maybe a 5 year Cd is paying .3 or .5% interest. Ten year US government bonds are now under 1%. Or “standard” savings accounts are .1% interest. No matter what, with inflation running two to three percent those investments are actually costing people money.
A retiree who maybe relied on their savings for some or all of their income has taking a tremendous hit to their income as a result of the coronavirus. If a senior had say 500,000 in “safe” investments, maybe in January 2020 that could have thrown off 15K or so in annual income…now, post pandemic, maybe they earn 1 to 2K per year.
Third, the weekly unemployment claims just came out. 3.1 million jobs cut in one week. The situation may only get worse the longer the pandemic goes on. With jobs being cut left and right, and/or workers being furloughed during the Coronavirus pandemic, retirees or those close to it have almost zero chance of finding extra work to make some money for their bills or to save. Time will tell how long (if ever) the job market will take to boom again, but time is not on the side of someone close to retirement or a senior in retirement.
Solutions during the pandemic
Honestly, no one knows. We can only hope that time takes care of Coronavirus and the nation’s economy. But no expert or talking head knows the answer. As even now, ~3 months after China had the first case their economy is still not operating correctly.
Our thoughts. Anyone who planned on retiring anytime soon better not do so; that would be the best advice we could give. If you are already in retirement, and relied on savings and/or investments for some or most of your income; then cut back now. No one knows when interest rates may go back up or the markets recover. Until then, cut back on expenses. And most importantly, stay healthy! As older people are most at risk from the Coronavirus.
By Jon McNamara
