Three Strategies to Protect Retirement Income During COVID-19

Three Strategies to Protect Retirement Income During COVID-19

The American College of Financial Services
September 24, 2020

After months of downward trends and doubts about when or where an economic recovery might take place, markets are rebounding from their COVID-19 lows. However, we’re far from out of the woods yet, and those hardest hit by the pandemic and its financial effects—those at or nearing retirement age—are still at risk of losing their hard-fought lifetime gains. What can you do, as the advisor to these clients, to help protect their retirement plans?

You can group retirement planning clients into several groups for analysis, but one of the largest is those struggling to simply make ends meet with their various income streams. These “Stay Afloat” clients are those who have already retired, whether by force due to job cuts or voluntarily to avoid suffering through a time of crisis, and whose retirement savings have been negatively impacted by COVID-19. Below are a few of the problems Stay Afloat clients may face, as well as what you can do to address them.


Explore Alternative Income Streams


Since the COVID-19 crisis began, the Federal Reserve has tried to revive the economy in part by dramatically slashing interest rates. While this may have saved markets from a prolonged slump, it hasn’t done seniors' portfolios much good: payouts on investments have fallen or dried up almost entirely, and retirement savings accounts don't have the same rate of return as they would under normal circumstances. For many clients, other sources of income may need to be explored.

Alternative financial products for retirement income, like annuities, may help in some cases. Fixed-rate deferred and registered index-linked annuities, for example, saw sales increase dramatically as advisors and clients began to use them more to protect retirement savings against market volatility. On the other side of the coin, however, insurers have pulled some variable annuity products because they’re difficult to price in a low-rate environment, making them even more of a challenge for clients who may have had to retire early and are looking for stability in their income sources.

Another possibility is for a return to work to supplement their income in the absence of pension plans or other guaranteed income. If clients face needing retirement in their late 50s or early 60s, there’s a good chance they’ll be able to find part-time or freelance work they can do from home or with a minimum amount of effort to boost their take-home pay once the pandemic recedes. Today’s retirement could be “temporary” and a prelude to tomorrow’s success, so make sure your clients plan accordingly.


Attend to Healthcare Concerns


Stay Afloat clients may also be burdened by increased healthcare costs, as the COVID-19 pandemic continues to make care more difficult to obtain even as it becomes more critical to ensure clients have a lifestyle that preserves and protects their health. Delaying medical procedures now can mean they have time to become worse, which leads to even bigger bills in the future. Moreover, COVID-19 itself has a disproportionate effect on older people, and long-term care needs, if any, may be in jeopardy given the dangers of living amid a high-risk population like a nursing home or long-term care facility.

In situations like these, it’s more important than ever to make sure you have an open and honest conversation with clients about their medical situations, future plans, and what a worst-case scenario for medical care might look like. That way, you can plan with them to build retirement income strategies like those mentioned above and give proper guidance on long-term care coverage products.


Have the Benefits Discussion


In modern times, more and more Americans lean on the income stream from Social Security benefits to ensure their retirement lifestyle, but the strength of the program itself is becoming more and more uncertain: the COVID-19 pandemic may exacerbate these existing problems. In many situations, clients at or near retirement may want to take Social Security benefits earlier, when in fact delaying benefits for as long as possible may be the better course of action to get more of the money they’re entitled to. However, this can also mean drawing down other retirement income assets earlier that may have suffered losses due to the current market situation.

The truth is that Social Security benefits today are a balancing act: advisors have to measure the benefits and risks of relying on Social Security benefits versus delaying payments and using other sources of income first. The right answer to the problem largely depends on the individual clients you’re working with, and always make sure to keep the primary goal in mind: to make your clients’ available income streams last through the remainder of their lives.


Help Restore Your Clients’ Cash Flow and Confidence for the Future


In the age of COVID-19, retirement income planning for millions of Americans has gone through years of evolution in the space of months. During this unprecedented market disruption and the uncertainty it brings to retirement portfolios and strategies, you need to know how to shore up retirement savings and compensate for the post-COVID shift.

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