Since its founding in 1776, the Unites States has endured several economic dislocations, financial crises, natural disasters, civil wars, terrorist attacks, and global pandemics. It’s not uncommon for countries to experience these types of life-changing events at least once per generation. In fact, these events will often create generational changes in terms of economics, politics, and social relationships.
Of course, the most recent life-changing event has been the COVID-19 pandemic. Why has COVID-19 proven to be such a major culture shock? There are several reasons why COVID-19 has created a wave of fear, uncertainty, and apprehension. The most likely reason is that the global population has rarely experienced this type of economic dislocation. The most recent event that similarly compares to COVID-19 is the Spanish flu of 1918. Eventually, the Spanish flu was eradicated and life returned to normal. In fact, following the elimination of the Spanish flu in 1919, the United States experienced one of the greatest economic booms in American history. The 1920s unleashed a decade of unprecedented economic prosperity and wealth creation. This time period became known as the Roaring 20s.
As a result of COVID-19, there exists a great deal of nervousness and anxiety, particularly as it relates to job security. During the past eight weeks, 36 million Americans have filed for unemployment benefits. Our nation’s unemployment rate is hovering near its highest level since the early-1930s. Is the US economy in the early stages of a multi-year recession? Will our nation experience double-digit unemployment for the next several years? Or perhaps the domestic economy will surprise the experts by creating a wave of new growth and prosperity similar to the Roaring 20s. Unfortunately, it’s impossible to accurately predict the future direction of the US economy. Until we have a better handle concerning the outlook of the job market, most Americans will remain uneasy.
Will Americans Alter Their Retirement Plans?
What about the millions of Americans who were planning to retire within the next few years? Did COVID-19 permanently postpone their retirement plans? Arguably, the group who has sustained the greatest hardship from COVID-19 is the Baby Boomer generation. Beginning in 2011, the first round of Baby Boomers became eligible for retirement by turning 65. Each day for the next decade, 10,000 Baby Boomers per day are scheduled to retire. These statistics were taken from a March 2019 article in the Washington Post. However, as a result of the global pandemic, it’s highly unlikely that the boomers will feel financially secure enough to retire. Obviously, all Baby Boomers should not be lumped in the same category. For example, many Baby Boomers will continue with their plans to retire despite the pandemic. However, it’s probably safe to assume that the majority of boomers will feel more comfortable postponing their retirement plans until they have a better handle on the repercussions of COVID-19.
What about the rest of us? How will COVID-19 affect the retirement plans of American workers who do not fit in the Baby Boomer category? If you belong to one of the younger generations, you have the benefit of “time” on your side. Many American workers have been forced to temporarily suspend 401(k) contributions due to job losses and reduced working hours. These layoffs could easily continue for the next several months. In addition to lost 401(k) contributions, workers are finding it difficult to continue making contributions to self-funded retirement accounts such as Traditional IRAs or Roth IRAs.
Eventually, COVID-19 will be reduced to a more manageable level and the American public will return to work. Immediately upon returning to work, the best course of action is to slowly increase your 401(k) and IRA contributions in an effort to recapture the lost contributions during your layoff. As we briefly discussed, if you are a young worker with several more years of employment, use “time” to your advantage by developing an investment strategy designed to slowly increase your retirement account to pre-virus levels. This can be accomplished by systematically increasing your contributions.
For those of you who are near the age of retirement, it will be more difficult to recover lost contributions. You may want to consider a rather aggressive strategy of increasing your equity exposure. Why? Because equity markets have outperformed all other asset classes over the long run. However, there is no guarantee this strategy will work. If you are considering using this type of approach, you may want to visit with a licensed investment professional. A licensed professional can help you determine if this is an appropriate strategy for someone in your age category.
Without question, COVID-19 will be remembered as one of the most economically disruptive time periods in modern American history. Millions of American workers were forced to temporarily suspend contributions to their retirement accounts. As the economy slowly begins to reopen, we have an opportunity to recapture lost contributions. If you need help developing a specific strategy, you may consider speaking with a licensed investment professional.
Do you have questions about your retirement plan as it relates to COVID-19? If so, you might consider meeting with a licensed investment professional. Angelica Roxas has been a licensed investment professional for almost 20 years. She is a financial strategist specializing in helping clients develop specific investment plans in regard to asset allocation, retirement solutions, and tax strategies. In addition to being President of Strategic Asset Preservation Inc, Angelica is also the Founder and President of South Bay Tax Solutions. She is an expert on helping her clients understand complicated financial matters. More importantly, Angelica helped her clients successfully navigate the global financial crisis in 2008. Today, she is helping her clients stay the course and stick to their financial game plan as they weather the storm of the COVID-19 crisis.
If you would like to meet with Angelica at no cost or obligation, she will be happy to review your financial situation. Angelica’s phone number is (424) 247-1120 or email at firstname.lastname@example.org. Visit us at: www.strategicassetpreservation.com.