Countdown to Financial Fitness: Should You Refinance?

Countdown to Financial Fitness: Should You Refinance?: We keep expecting interest rates to rise, but then they get cut again. If you're carrying a mortgage, maybe it's time to refinance...

Countdown to Financial Fitness: Retiring During a Crisis

Countdown to Financial Fitness: Retiring During a Crisis: This was going to be the year. Your 401k was robust, you'd put in your time, and a leisurely retirement was on the horizon. Maybe you ...

Retiring During a Crisis

This was going to be the year. Your 401k was robust, you'd put in your time, and a leisurely retirement was on the horizon. Maybe you even had an exit date and celebratory travel plans.

And then the coronavirus invaded. Words like "social distancing," "shelter in place," and "flatten the curve" entered our vocabulary. Masks and gloves became part of our wardrobes. Thriving businesses closed their doors. Jobs disappeared. The stock market tanked. Suddenly, your nest egg doesn't look so secure.

I faced a similar situation in 2008, on the cusp of the Great Recession. After years of working in the beleaguered airline industry—where we suffered pay cuts while employees in other industries earned raises, where I dodged the ax time and time again amid multiple reorganizations—I decided I was going to accept a retirement-incentive package as soon as I was eligible. And in early 2008, I had the right combination of age and years of service to take advantage of a buy-out.

Years of frugal living had enabled us to pay off our mortgage. We were debt-free and had no children to educate. Our investments were doing great. My husband's job was safer than mine, and I could be added to his health insurance plan. So, I signed the papers.

And then the housing market collapsed, taking the stock and bond markets along with it. Suddenly my retirement accounts didn't look as hardy.

I knew better than to yank my money out and cement my losses, but going off the payroll took away my ability to keep contributing to my 401k and dollar-cost average, taking advantage of fire-sale prices.

Reneging on my commitment to accept the early-retirement package wasn't an option nor did I want it to be. But, luckily, my company offered me the opportunity to work short-term as a contractor in one of my old departments while still drawing my pension. Contract jobs off and on for the next few years enabled me to shore up my portfolio and participate more in the market's recovery.

But what can you do now if you're in that predicament—planning to retire and suddenly not as prepared as you'd thought? In a few short weeks, we went from almost full employment to record unemployment claims, so postponing your decision to leave or picking up part-time work might not be possible.

Hopefully, you've already planned for survival without your salary. You've paid off or greatly reduced your debts. You've anticipated expenses, decided on the lifestyle you want in retirement, and figured out how to finance it. You've moved your investments to a more conservative allocation, so you don't have to sell volatile assets at a depressed price to cover living expenses. 

But still, if most of your retirement income was set to come from your investments, you might need to make adjustments. Here are some suggestions:   

• Review your asset allocations. After the drastic drop in the stock market and interest rate cuts, your investment distributions might be out of balance. Ensure that you've adjusted to a mix suitable for someone drawing down assets instead of accumulating them.

• Make your withdrawals from cash accounts, or mutual funds with the most stable values. This will give your more aggressive holdings time to rebuild their worth.

• Tighten your belt; comb through your budget and look for areas where you can reduce spending without compromising your values.

• Postpone major trips and events. (The pandemic might have already wreaked havoc with your plans for a big retirement bash or a family cruise.)

• Clean out your garage, your attic, your spare bedroom, and have a yard sale. (If it's allowed in your community and you practice social distancing!) Or sell some possessions you don't need anymore on e-Bay.

• Consider taking Social Security earlier. But be careful; be sure you really need the money now. If you're under full retirement age, you'll be permanently sacrificing some of your future earnings. The longer you wait to file (up until age 70), the bigger your checks will be when they finally come.  

Life is full of surprises, and the best-laid plans can sometimes fall by the wayside. But the more flexible, patient, and prepared you are, the better your ability to adapt.

What are your thoughts about planning for retirement? I’d love to hear your comments.

Sharon Marchisello is the author of Live Well, Grow Wealth.
Sign up for her newsletter at sharonmarchisello.com

Countdown to Financial Fitness: Conserving Resources During a Pandemic

Countdown to Financial Fitness: Conserving Resources During a Pandemic: Financial experts preach about the need for an emergency fund. If your income stream suddenly ended because of lock-downs forced by the co...

Conserving Resources During a Pandemic

Financial experts preach about the need for an emergency fund. If your income stream suddenly ended because of lock-downs forced by the coronavirus pandemic—with no assurance of when it will restart—and your expenses continue, you’re probably dipping into that emergency fund now. The more robust, the better.

As a reminder, an emergency fund is three to six months’ living expenses tucked away in a liquid, low-risk asset like a savings account or money market fund. Not the stock market.

Unfortunately, nearly a third of Americans have no emergency fund and many more live paycheck to paycheck. When the paycheck abruptly stops, they’re in real trouble.

Unemployment, some debt forgiveness or deferment, and the $1200 relief check from the federal government will help many, but for others, it won’t be nearly enough.

Depending on how long this pandemic and resulting economic fallout last, there will be businesses that fail. Not every job will come back.

If you’ve lost your job or business and you don’t have an emergency fund, it’s too late to start one now. But there are a few things you can do to conserve resources and stay afloat:

·        Refrain from unnecessary purchases. With malls and many retail stores closed, this is easier than ever before. But if you’re addicted to online shopping, step away from the computer.

·        Don’t be a hoarder. Buy only the supplies you and your family will need for the next few weeks, and perhaps a little extra if you anticipate problems getting back to the store for reinforcements. You won’t tie up so much cash, and you’ll be a better citizen.

·        Conserve energy. With fewer places to go now, it’s easy to save money on gasoline for your vehicle. At home, turn off unnecessary lights and appliances, keep the temperature inside as close to the outside temperature as you can stand. (Luckily, it’s spring in most places, so we don’t have to spend a lot heating or cooling our homes right now.)

·        Conserve water. Turn off the faucet while you’re brushing your teeth or sudsing your hands for 20 seconds. In the shower, turn off the water while you shampoo or condition your hair. If you have some downtime at home, fix leaks and cracks.

·        Don’t waste food and paper products. You may have already figured out how to ration toilet paper!

·        Cook more from scratch. There are plenty of free online videos that teach you how to prepare easy, nutritious, and economical dishes for your family. Take advantage of seasonal fresh produce that is still on sale. Store leftovers promptly, label, and use.

·        Negotiate with creditors about waiving late fees, lowering interest rates, and/or relaxing repayment terms. They know everyone is hurting and most should be willing to work with you if you’re sincere about your obligations.

·        Defer discretionary expenditures. Some of these decisions may have already been made for you: large social events, vacation travel, visits to amusement parks, etc.

·        Leverage credit. Normally, I don’t advocate taking on more debt, except as a last resort. These are desperate times, and debt may be your last resort. Make sure it’s for a “must-have” rather than a “want-to-have.” And pledge to start paying it off as soon as you’re back on your feet.

Life may look bleak for the moment, but one day—hopefully sooner rather than later—this pandemic will be over and the economy will begin its recovery. As soon as you’re able, start an emergency fund, so you’ll be better prepared next time!

What are your thoughts about emergency funds? I’d love to hear your comments.
Sharon Marchisello is the author of Live Well, Grow Wealth.
Sign up for her newsletter at sharonmarchisello.com