Money Fix: Calculating whether your retirement plans can stay on track

The world is upside down. The only thing that is certain is uncertainty.

If you’ve been planning to retire in the next 18 months, you’re likely wondering whether you should make the exit you’ve been dreaming about or keep working until the chaos from the pandemic passes. It’s a big question with no easy answer.

A new study from SimplyWise, an online platform offering retirement advice, found that when the stock market dropped in early March, 44% of those polled said they would delay their retirement and continue working if the market dropped another 10%. And 18% say they would work for at least five more years as a result of prolonged stock market woes.

Here's what some experts say.

Factor in the wiggle room

“Should retirement be delayed now due to the COVID-19 pandemic? My answer is best summed up in two words: it depends,” said Brian Cohen, principal investment adviser with Landmark Wealth Management in Melville. "Different people are in different financial circumstances, so it cannot be a blanket, one-answer-fits-all" response.

If a person was thinking that they would have just enough to get through retirement, then the suggestion would be for them to continue working longer until they have some breathing room, advised Cohen.

People facing retirement often consider returning on a part-time basis, or as a consultant, but that is less of an option today than it was two months ago, Cohen said. "If it is a job that can be lost and not secured again, such as what may be happening now to people, then they may not want to take a chance” on retiring sooner.

For those in better financial shape to retire, but with concerns that the stock market may never recover, Cohen advised relaxing and taking a deep breath. You can safely plan to withdraw a small amount each year.  A standard rule of thumb, he said, is that 4% withdrawals taken from a balanced investment mix (a roughly 50/50 mix of stocks and bonds/fixed income) from age 65  should last for 30 years with inflation increases. The reason for the 4% withdrawal as a "speed limit" is that it takes into account someone starting to withdraw specifically for times like this, when the market is down. Ideally, if you are in this category, you would also have an emergency fund to cover three to six months of expenses.

“Companies can go out of business. Different sectors can be in poor shape for years. However, while the economy may go into a recession, or even a depression, it will eventually recover. People will still need to buy goods and services. It may take a couple of years, maybe even more than a couple,” Cohen said.

“For a person that is 65, five years is a short time when we are planning for the next 30 years. Even at this point in time, we are far above where we were at the depths of the financial crisis when it bottomed out March 2009,,”  he said.

Do the math

The current financial situation brought on by the coronavirus pandemic has seen many retirement accounts lose anywhere from 25% to 45% of their value, says Neel Shah, a financial adviser and owner of Beacon Wealth Solutions in Monroe, New Jersey. “If you’re within one or two years of retirement, seeing an account dip like this probably means it's time to revisit your retirement plan.”

If, for example, you had calculated that you could afford to stop working in 18 months, inherent in that conclusion are additional income/savings to be accumulated until you actually retire, assumptions  about income and expenses in retirement, inflation and rate of growth on your current investments. Clearly, in the current climate, that assumed rate of growth in the short term will not be great.  

While long-term investors should be fine, if you’re dependent on a certain rate of growth in order to meet your retirement goals, your choices at this moment will probably be to work a bit longer or, if possible, to decrease your expenses in retirement. “Working a bit longer may not necessarily mean working full-time. Even adding 25% of the income that you had while employed can still dramatically impact a plan if handled properly,” Shah said. 

On the other hand, if you can afford to go for a while without using the funds from your portfolio, by depending on Social Security and pension payments, for example, you may be able to stay on track to retire at your scheduled time. “But of course, the devil is in the details. How long you can go without using the funds from your retirement accounts may determine your success rate,” Shah said.

A guaranteed income product like an annuity is another source of secure retirement income that can help keep you on track, said Amal Gawle, a financial advisor with Prudential in Melville. The income, Gawle said, will help you be "better-positioned to hold to your original timeline and retire sooner because your financial picture in retirement already includes income to cover basic expenses such as rent or mortgage, utilities and other essentials.”

Keeping a toe in

If you retire now, you may find that it's challenging to re-enter the workforce, especially now, given how many are unemployed and will be looking for work.

“Consider working part-time not only to give you some extra income to supplement possibly the lessened amount in your retirement savings, but also allow you the opportunity to be out in the workforce. This is an excellent way to ease into retirement, especially if you're used to getting up and going to work every day,” says Leslie Tayne, a debt resolution attorney with the Tayne Law Group in Melville.

Be sure to keep your spouse's income in mind, as well. If your spouse lost their job and wasn't ready to retire and you were relying on those funds to cushion your own retirement, it makes sense for you to keep working, she said.