The COVID-19 pandemic has been hard on seniors, both physically and financially. Just as many people took early and unplanned retirements, they were then hit by a cratered stock market and runaway inflation.
A new survey from the Employee Benefit Research Institute found that 27% of retirees said their expenses were more than they could afford this year, up from 17% in 2020. And that’s with nine in 10 retirees who are tightening their belts and reducing their expenses. since the pandemic due to inflation concerns, according to the survey.
“2022 created this perfect and imperfect storm with interest rates rising, assets falling with the market and inflation rising. It generated a lot of negative emotions like anxiety and fear. Money is a very emotional topic – it’s your life and your savings,” Beau Henderson, managing director and senior retirement planning specialist at RichLife Advisors in Gainesville, Georgia. “But there are ways to get out of this period. .
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“People have been pressured into retiring ahead of schedule. Many people were forced to retire before they were ready,” said Nick Foulks, an adviser at Great Waters Financial in Minnesota. “So a lot of people retired early and without a plan. Then we had a flash crash, with asset balances dropping significantly and people panicking. Now is the time when people need to gain clarity. How to replace income streams? How to make an inventory of what has been impacted? »
Evaluate and revise your plans
“Inflation is not going to go away next week or next month,” said Robert Gilliland, managing director and senior wealth management adviser at Concenture Wealth Management in Houston. “We’re telling people to go and review their financial plan in terms of having a higher inflation rate for a while.”
Gilliland also said retirees need to make sure the money will be there when they need it. Working with a financial advisor can help and potentially give you more peace of mind and flexibility for life’s setbacks.
Seek growth in a declining market
Gilliland encourages its clients to take an approach that adapts as needed to get through tough times, provides opportunities for growth and ensures the money will be there when they need it. He also said retirees should seek sources of guaranteed income, but cautioned that annuities don’t work for everyone.
“CDs are paying more than they’ve done in 10 years, but don’t go tying up money for long. Look at three to six month investments,” Gilliland said. “When the market is down, the natural tendency is to get out of stocks and into cash. But you still need growth in your investments. There are areas of this market that are still growing.
“Even though this market has a lot of negatives, take advantage of this time. A bear market is a great time to do Roth conversions. Roth conversions are basically on sale right now,” Henderson added. a good year to reduce your tax bill through crop losses.”
Review your social security strategy
For retirees who have not yet taken Social Security, revise your plan around when you will tap into this source of income.
“Most people pick it up way too soon,” Gilliland said.
“Don’t rush the Social Security decision,” Henderson said, adding that 96% of households don’t claim their Social Security at the right time and leave money on the table by not waiting until later for a bigger payment. raised.
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If a worker starts receiving benefits before full retirement age, they will receive a reduced benefit. A worker can choose to retire as early as age 62, but this can result in a reduction of up to 30%, according to the Social Security Administration.
For retirees who have already started Social Security, there will be a steep increase in the cost of living in the new year of 8.7%, the biggest increase in four decades.
Budgeting and reducing the surplus
The Employee Benefits Research Institute found that seven out of 10 retirees say Social Security is their main source of income.
For these retirees, having enough money each month can be difficult. The best way to control your expenses is to have a budget and look for any potential surplus. It’s important to have a budget and reduce variable costs or discretionary items, Gilliland said.
“Identify the difference between necessary and nice to have. People need to think about value-based spending: What experience or item am I exchanging by making this purchase? said Foulks. “The reality is that you will have to figure out what matters most. There is often not much wiggle room.
“I hope you notice that you are spending money unnecessarily. Go beyond necessities, focus on people and experiences,” Henderson said.
Get a part-time job
Also, don’t underestimate the benefit of a part-time or part-time job, Henderson said.
“Work does a lot for retired people. It helps build relationships, it’s a little extra income that can go a long way to smoothing out the tough times, and it provides some structure. There are financial and non-financial benefits to working in retirement,” Henderson said.
Get a strategy for the next downturn
“Most people don’t have a retirement strategy. Now is the time to get one. That way, the next time something happens in the market or the world, you’ll be in the best possible position to survive it,” Henderson said.