Financial Planning For Older Employees In The Midst Of COVID-19

Summary

• Over 5.5 million Canadian workers were impacted by the pandemic.
• COVID-19 has ruined the financial plans of many recent retirees and those who plan to retire soon.
• One needs to take stock of the current situation and avoid dipping into retirement corpus.
• From reevaluating immediate short-term financial structure to moving funds to safe assets, there are several ways to explore financial planning amid the pandemic.

The COVID pandemic has been particularly harsh for older workers. Studies point out millions in the age group of over 50 will be made redundant during the pandemic. The ones still in workforce will face the job market’s increased preference for younger employees, who also come cheaper.

During the initial months of the pandemic (since February), Canada lost over 2.5 million jobs. By April, over 5.5 million workers were directly impacted by the pandemic, which included 3 million employed and 2.5 million increase in absences from work.

The country has slowly added back the jobs to the market. In October, the unemployment rate in Canada was 8.9 per cent, and individuals in the 25-54 age group had gained the most. The unemployment rate among people above 55 years was 7.9 per cent, while the employment rate was 34.1 per cent.

Pandemic Ruining Retirement Plans

For many, the coronavirus has permanently ruined their retirement plans. Those who lost their jobs have been forced to withdraw from savings. Moreover, value and returns of most investments (that are a part of their retirement portfolio) are crashing due to continued market volatility. At the end of the day, many Canadians are staring at rebuilding their retirement funds.

According to a recent survey by Canadian Imperial Bank of Commerce, one of the top five banks in the country, the COVID-19 has hit Canadians' savings and anticipated lifestyle in retirement.

Nearly 40 per cent respondents from the CIBC survey were worried about the impact of the pandemic on their savings and retirement, while another 20 per cent of the people over the age of 55 were unable to contribute to their savings fund.

The abrupt market changes have also altered Canada’s registered pension plans, such as defined contribution (DC) and defined benefit (DB), and the employer-sponsored retirement savings plans.

Taking Stock of Situation

Retirees should not withdraw over 5 per cent annually from their portfolio, says a study by Deloitte Canada. In these volatile times of COVID-19, recent retirees or those who are soon set to retire must take stock of the following factors:

• Savings: How much money sits in the savings kitty? Is it enough for you and your dependents, if any?
• Debt: How to manage a zero-debt situation? Talk to your fund managers and banks to figure out your loan-repayment deal.
• Insurance and Funds: How to fund college-going children’s education or caring for aged parents? How to manage health insurance costs?

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How To Avoid Dipping Into Retirement Corpus?

Those eyeing retirement soon must adopt a new game plan amid the pandemic circumstances. Those who lost their jobs need to figure out a way to supplement their pension fund with investment income.

Here’s a brief glimpse of what folks in their 50s will need for their financial planning:

• Developing an immediate short-term financial structure and cutting down on expenses
• Filing for unemployment insurance, evaluating social security options
• Adopting group registered retirement savings plan (RRSP) and deferred profit-sharing plan (DPSP), which do not have the typical "locking-in" rules and exemption from pension minimum standards legislation.
• Moving funds from low-yielding bonds and securities to higher paying and low risk assets
• Investing in dividend-yielding market equities for long term gains and tax savings
• Reallocating cash reserves from severance packages or stock market gains
• Adjusting budget and cutting down on insurance premiums, travel plans
• Re-assessing requirements and decide on full-time or part-time job/low payout job or contractual positions
• Taking the entrepreneurship route and exploring own venture and the financing for the same

At the end of the day, one needs to accept that pre-COVID investment strategy may not fit the post- COVID world. Apart from cutting down on expenses and holding on to income or money, one needs to zero in on investments fetching higher ROI (return on investment).

When it comes to stocks and equity, it is advised to select the fund carefully. Make sure the investments suit your current risk appetite. Reach out to Kalkine advisors for more details here.