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When a crisis threatens your retirement plan (part I)

Updated: Oct 25, 2022

When a crisis forces you to adjust your financial plan for retirement

rough seas ahead?

Economic crisis eroding your retirement nest egg?

According to a report by Yahoo!Money, retirement savers have taken a $3 trillion hit during 2022. That is the harsh reality of having a large proportion of the retirement account pegged to equities. For those that are recently retired and living off a fixed income, with the principal in your nest egg eroding from the current economic crisis, well I am with you there. Maybe you had a game plan to engineer your retirement or relaunch in the near future and the current economic situation has potentially derailed that. I have been there as well. Or it could be that your company sees a new way of structuring the business model in the next few months, and your role does not figure into that plan. I definitely feel for you.

Take guidance from your financial advisor on your retirement plan

My front line advice is not to over-react. A good financial advisor will be very valuable in any of the above-mentioned scenarios. During the great recession of 2009, I was just building a reasonable nest egg and was between financial advisors when I was put into a situation to make some serious financial decisions. My company was moving and I was asked to move with them at a time when the economic climate was not good. My savings had been eroded by 25 to 30% and my current home was not worth what I paid for it. So my knee-jerk reaction was to give myself a safety net and buy out the mortgage on that home before relocating to my new destination. I probably would have recovered half or more of the retirement savings I used for that transaction had I waited a couple of years. At the time I saw it as buying peace of mind, but, I probably should have considered all the options more thoroughly.

take a breath and wait as markets do come back

See the setback to the retirement plan as an opportunity to rethink the plan

That situation set back my retirement plan by a few years (some of which I earned back by forcing more savings after the move). But the upside of that situation is that it gave me more time to explore my potential fit with academia and develop a deeper resume for my relaunch option. In the end, it worked out to my advantage as the healthier academic resume earned me an opportunity to teach a semester in Hong Kong.

the set back gave me time to validate my relaunch plan

Inevitably, the economic hardships created by the current financial crisis will lead to the forced retirement of great numbers of talented people. Many will have been pushed into a premature exit without a strategy or options line up. With unemployment levels at unprecedented levels, this will likely be a serious challenge for them.

But if, like me, your current income strategy depends on preservation of principal, and that principal appears to be shrinking only about a year into the plan, to say it is daunting is an understatement. This time around I know better. The first thing I have decided is not to look at my portfolio at all, and I haven’t done so since the markets started to decline. I know there is nothing I can do about it. There have been other black swan events and economic crises that I have weathered, and I have to assume that, ultimately, this should be no different.

calmer seas lie ahead

Create a network that will represent a 'resiliency circle' for emotional health

I think the key to surviving this is to willingly adjust expectations, develop a ‘resiliency circle’ of friends and colleagues to commiserate with and bolster as needed; try to keep emotion out of decision making; and keep informed about the verifiable facts without obsessing over them.

So stay well, keep your spirits up and if you found this message helpful, please share it on whichever social media platform you use.

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