Your Retirement … with Brian & Bob: How you react during this pandemic depends on your retirement horizon

Many financial experts expect this crisis to be more comparable to the sharp market crash of 2001

By Brian Harrigan and Bob Price

With the market being volatile and one in four small businesses shut down because of the COVID-19 pandemic, panic related to the uncertainty the future holds are common for many Gilroy residents.

We were not surprised when a client told us recently, “each day feels like the movie Groundhog Day.” With the market volatile, experts say the ups and downs will continue to be commonplace until we see downward pandemic trends continue for an extended time period.

Our office has been getting lots of questions related to the future, safeguarding money, and concerns with taxes have spiked given the $2 trillion stimulus package.

So how should you react? The answer to such a question relies on several factors with the most important being your horizon for retirement. Many financial experts expect this crisis to be more comparable to the sharp market crash of 2001, not the credit crisis in 2008 that stretched half a decade. This is good news, as we bounced back relatively quickly after 9/11. A turnaround as soon as a vaccine or treatment reduces health risks does make sense, but the economic impact should be felt long after the medical crisis is averted.

Those of you who have been working with a financial advisor have likely developed an income plan and allocated assets in a way that addresses future income. Your asset allocation should consider tax implications of the present while preparing for changes down the road. Expect tax changes over the long haul to be even worse than predicted previously with the recent additions to our national debt

If you have already retired, it is important to stay the course with a focus on income planning leaving yourself a cushion for expenses that could come as unexpected. Medical debt is the biggest cause of bankruptcy, period. If there are ways to address these costs with tax advantaged dollars that can aid in protecting your other assets from liquidation (and possibly large tax consequences), we advise you investigate them.

For residents of South County who are planning to retire within the next 10 years, shifting to financial vehicles with guarantees and security is encouraged if your risk tolerance has been impacted by changes in the market. Still, you should consider this for only a portion of your portfolio focusing on portions with the lowest yields. Bonds, treasury notes, certificates of deposit, etc., while considered safe, do not yield the returns other vehicles can provide with similar safety from risk. Market analysts recommend not selling securities with substantial losses as the market’s history shows these will recover with time. Large cash investments should also be done with extreme caution.

Are you planning on retiring in more than 10 years? Continue making regular contributions to accounts and diversify. Putting all your eggs in one basket is never advisable. Also, look at future tax implications to help maximize your “net spendable” dollars (amount remaining after you pay Uncle Sam). Taxes will swing from high to low or low to high at times, but many expect taxes to remain higher than they currently sit. The Congressional Budget Office estimates the highest marginal tax ate will be 55 percent to 60 percent in five years.

If you do not have a plan or have been meaning to revisit charting your course, now is the time. Regardless of age, your retirement plan should be designed to withstand this type of market volatility. Finding an advisor, you can trust, so you are prepared for whatever the future hold is crucial. Contact our office for a free video consultation to plan today, so you can enjoy tomorrow.

Brian Harrigan and Bob Price are the owners of Executive Plan Design in Gilroy. They are located at 8355 Church St. Contact them at (408) 767-2572 or email [email protected] or [email protected].