New Retirees Need to Change their Outlook: Personal Finance Expert
Thu, February 2, 2023

New Retirees Need to Change their Outlook: Personal Finance Expert


The finance expert added that some nearing retirement may have to work another year or two while the market moves forward.  / Photo by De Visu via Shutterstock


As stocks fluctuate frequently, increasing and decreasing in value in a single trading day, investors nearing retirement need to adjust their expectations, according to Chris Hogan, personal finance expert and author of the book Everyday Millionaires.



The need to adjust expectations for those nearing retirement

Hogan told Yahoo Finance that we are undergoing an unprecedented time right now, but those who are nearing their retirement need to change their outlook. Some may be able to move forward from the impact of the pandemic and apply for early retirement, but there will be some who need a part-time job to make sure that their expenses are covered by their income.

The finance expert added that some nearing retirement may have to work another year or two while the market moves forward. His remark comes at a time when US jobless claims reached 30 million in just six weeks and coronavirus recession fears grow among investors. Many investors said there is little clarity on how effective the government measures will be and what trajectory Covid-19 will take them. This makes it more difficult to gauge the economic damage to the asset market.

As Covid-19 spread in the US, investors have become more concerned about various factors, such as the confusion of the actual number of Covid-19 cases in the country, the social distancing measures that affect consumer spending, damage to the economy, and the uneven government response.

Capital market company Leader Capital’s CEO and Senior Portfolio Manager John Lekas previously said via Reuters that the market has not yet caught up to the facts. He likened the situation to jumping off from a 20-story building to the 10th floor. He thinks there will be another 20% or lower in the equity markets for 2020.



S&P 500 Index

S&P 500 Index, the stock market index that measures the stock performance of 500 large companies listed on the US stock exchange, dropped to 15.88% from its recent high on February 19th. Top performers in the stock market index as of May 11 are Cardinal Health Inc. ($52.90), Vertex Pharmaceuticals Inc. ($286.00), Advanced Micro Devices Inc. ($55.92), AbbVie Inc. ($88.50), and Biogen Inc. ($328.10).



Hogan advised those who are planning for early retirement to not make a “knee-jerk” decision. Instead, step on the brakes first and consider talking to a financial expert or advisor before they make a rushed decision. Making quick decisions without talking to an investment professional may mean missing out on a rebound that may come. The reality is that the market will make a comeback.

The personal finance expert added that this is not the first time that investors have had to go through the financial setbacks. During the Great Recession, 9/11, and SARS, the market bounced back. Now that we know that the market is going to come back after the Covid-19 pandemic, the people that are nearing their retirement or are already in the retirement phase have to change their game plan.

Hogan reminded those in the retirement phase that although there is Covid-19 relief legislation called CARES Act, which allows early withdrawal for some retirement accounts, investors should avoid tapping into such an option. The two reasons he gives for why they should avoid tapping into their retirement savings soon are to avoid bankruptcy and avoid foreclosure.

The coronavirus relief legislation comes with provisions for retirement accounts. It allows withdrawal of up to $100,000 from their retirement savings 401(k) or Individual Retirement Account (IRA) early without the 10% additional penalty. Normally, anyone younger than 59 ½ years need to pay for such a penalty. But with the new Covid-19 relief law, anyone who experiences adverse financial consequences caused by the pandemic, such as being quarantined or being furloughed, or those who can’t work because they have to watch their kids who can’t go to school because of the health crisis, can tap into their retirement savings.

Hogan commented that CARES Act may have removed the penalty but there are still taxes if a person does not repay the withdrawal amount. “We all know compound growth is how money grows,” he added.


The coronavirus relief legislation comes with provisions for retirement accounts. / Photo by Rido via Shutterstock



Salary workers by tenure and access to retirement

The US Bureau of Labor Statistics states that 15.3% of workers age 65 and older have been with their current employer 2 or fewer years as of January 2018. In contrast, 54.4% of wage and salary workers age 65 and older had 10 years or more of tenure with their current employer in the same period.

The Bureau also published that retirement benefits were available to 66% of workers in private industry in the US as of March 2015 but access to said benefits vary among occupational groups. Among workers in the service industry, 39% had access to retirement benefits compared to 66% in natural resources, construction, and maintenance. In the sales and office occupational groups, 70% of them had access to retirement benefits. Other private industry occupational groups mentioned are those in production, transportation, and material moving (71%) and management, professional, and related (66%). In the same way, medical care benefits were available to 69% of these private industry workers in the same period.




Retirement savings

Americans also expressed slightly greater worries in 2016 than they did in 2015 about financial issues. In a poll conducted by analytics company Gallup, 64% of the respondents said that they were concerned about not having enough money for retirement compared to 21% who were worried about not being able to make the minimum payments on their credit cards and 34% who were concerned about not being able to pay their rent, mortgage, or other housing costs.  

The other financial issues polled by Gallup were how concerned US respondents are of not having enough to pay for their normal monthly bills (41% said they are concerned), not being able to pay medical costs of a serious illness/accident (60%), and not being able to pay medical costs for normal healthcare (45%). This just goes to show that American retirement funding remains atop people’s lists of financial concerns with the majority worried that their standard of living will deteriorate in the future despite signs of gains in the US economy in 2016. This might be even more true amid the current pandemic.

It would, therefore, be best to avoid dipping into the retirement benefits while being quarantined unless it is absolutely necessary. It is important to consider the trade-offs when one decides to remove money from their retirement accounts.