By John Drachman
The rapid procession of record-breaking losses and gains can be exhilarating for young risk-takers. For near-term retirees at a social distance from everyone except who they are sheltering with, the prospect of retiring in a year can look pretty daunting.
While tomorrow may unlikely, retiring a year from now can still be a possibility. Despite the unpredictability of the market, the underlying metrics of the Covid-19 pandemic point to some fairly predictable outcomes already. Those countries that see their cases peak and gradually sink – the vaunted “flattening of the curve” effect – will haltingly see their economies return to some form of “normal.” After sinking 35%, the Dow Jones Industrial Average advanced 20% furiously on March 26. Fortunes are likely to be gained and lost daily outside of the DJIA’s more moderate ranges for quite some time. Accordingly, there is still a chance for a pre-retiree to recover all or most losses over the course of 12 months.
Every Pandemic Ends
On this point, both medical practitioners and policy makers agree: Every pandemic ends. With enough in cash or income-generating investments to avoid accessing retirement assets, an investor might continue meeting living expenses and outlast the pandemic while giving their retirement portfolio a chance to recover.
The Covid-19 state of the market might also be a good time to consider conversion to a Roth IRA. Declining values and low tax rates will mean a lower tax bill on the converted amount, according to retirement expert Ed Slott. “Tax rates are the lowest they’ve pretty much ever been in anyone’s lifetime,” he said. “The Roth conversion works if your tax rate in the future is at least the same or higher than it is now.” He added one caveat: “Those who convert… (should) ensure that they have non-retirement funds to cover the tax liability on the conversion.”
Tapping into Social Security prior to 70½, while not ideal, might still be desirable too. According to Peter Mastrantuono, “Bear market recoveries have historically posted returns substantially higher than average market returns… (which) may have a significant impact on whether it makes sense to delay Social Security if that delay requires using severely depressed 401(k) or IRA assets to meet retirement expenses.”
The financial impact of the Coronavirus Era can affect investors in such emotional and unpredictable ways though that a pre-retiree can get stuck – and do nothing. For those who need a low-threshold, pro bono way to get their retirement strategy unstuck, the Foundation for Financial Planning, (FFP) can offer a valuable resource. Fielding a team of Certified Financial Planners (CFP), the FFP’s mission is focused on helping those who have been disadvantaged by personal events or disasters like today’s historic pandemic so they can get – and keep – their finances and retirement dreams on track.
John Drachman is a contributing writer to MyPerfectFinancialAdvisor the premier matchmaker between investors and advisors .John is an IABC award-winning writer, who applies his 30 years of financial marketing experience toward advancing the dialog between investors and investment professionals.