retirement planning|  july 15, 2020

Will the Pandemic Postpone My Plans to Retire?

While significant down markets may be distressing, there may be some comfort in knowing that patience and adjustments may be needed for just a couple of years.


Key Points

  • Regularly reassessing where you stand against your financial goals can keep you on track toward retirement.

  • Develop a retirement budget to determine essential expenses and income sources.

  • Build up cash reserves before retiring.

  • Be flexible about your retirement date. Working longer could help build up savings and pay down any debt.

Judith Ward, CFP®

Senior Financial Planner

The coronavirus pandemic is disrupting financial markets around the world, making us fearful for both our physical and our financial well-being. Let’s face it, this isn’t your typical market volatility, and as a result, you may feel like you may need to do something different because retirement is in the near future.

Our company’s founder, Thomas Rowe Price, Jr., lived through the hardships of World War I, the Great Depression, and World War II. In 1937, he wrote, "Change is the investor's only certainty," cautioning investors not to focus only on the present, but to prepare for the future by taking a long view of financial markets.

Well, how do you do that?

At T. Rowe Price, we believe that investors nearing retirement should have a fairly balanced mix of stocks and bonds that reflects their risk tolerance and financial needs at this critical time. Why is this balance important? Because bonds help to manage short-term volatility while stocks provide growth potential necessary for a retirement that could last decades.

There are other benefits too, with some maybe not so obvious. Try as we might, we cannot escape the headlines about the stock market on any given day. Yet, if your portfolio is appropriately diversified, you are likely experiencing less significant drops. For example, a 100% stock portfolio dropped about 20% in the first quarter of 2020 while a 60%/40% mix of stocks and bonds only declined by 11%. Moreover, a balanced portfolio has recovered faster than an all-stock portfolio over the last two bear market events.

A Closer Look at Bear Market Duration and Recovery

Event Tech Bubble Crash
April 2000—October 2002
Global Financial Crisis
October 2007—March 2009
Bear Market Duration 2 1/2 years 1 1/2 years
Asset Allocation 100% Stocks

60% Stocks/40% Bonds

100% Stocks

60% Stocks/40% Bonds

% Drop -49% -23% -56% -33%
Recovery 5 years 2 years 4 years 2 years

Figures are rounded. Drop is based on the percentage drop from the highest market index value just prior to the correction to the lowest market index value. Recovery is defined as the length of time for the market to return to the previous highest market index value. Stocks are represented by the S&P 500 Index; bonds are represented by the Bloomberg Barclays U.S. Aggregate Bond Index. Past performance cannot guarantee future results.

Source: T. Rowe Price.

While significant down markets can be distressing, there may be some comfort in knowing that patience and spending adjustments may be needed for just a couple of years. That’s important to keep in mind if you were hoping to be ready to retire within the next five years.

Armed with the confidence that markets should recover, take a close look at your situation today and see what you can do in the short term to ensure long-term confidence in your future retirement.

1. Develop a retirement budget.

If you haven’t thought about what retirement will look like, review the expenses you have now and how those may change when you are retired. Will you have a mortgage or other debt? Will you be saving money on commuting expenses? What if you relocate to a state where taxes are lower? You have time to crunch these numbers now. Most importantly, you can:

  • Determine what retirement expenses are essential and where you might have more discretion. If spending adjustments are needed when markets are down, start with nonessential spending.

  • Assess your income sources in retirement: Social Security, pension, or other predictable income. Then determine how reliant you might be on your personal savings or a paycheck if you continue working.

  • Reduce debt before retiring to give you more freedom to spend money on wants rather than needs.

  • Consider whether refinancing a mortgage or consolidating high-interest debt can save you money or improve your cash flow in retirement.

2. Build up cash reserves.

Market downturns present an opportunity to invest, yet you may also want to start building a cash cushion you can easily access once retired. We recommend setting aside enough cash to cover three to six months of expenses while working. When you are heading into retirement, you may want to increase that to one to two years of spending needs. Why? To give you cover until your investments rebound. This provides an alternative to pay for daily expenses so that you don’t have to withdraw from investments when markets are down.

3. Reevaluate your risk tolerance.

If you have worked with a financial advisor or ever used an online investing tool, there’s usually an investor profile questionnaire. You were probably asked something along the lines of, “If your portfolio declined by 20%, would you sell or invest more?” Theres a good chance that, over time, your tolerance for risk has changed. Now is a good time to think about how you might adjust your portfolio over time to reflect your new perspective. And if your risk tolerance hasn’t changed, you might consider rebalancing if your allocation has drifted.

4. Be flexible about your retirement dates.

The recession in 2008 affected many people’s retirement plans. A survey from the Employee Benefit Research Institute found that 48% of people said they retired later than they planned.1 Consider how another year or two of salary could help with paying off debt, increasing your cash reserves before retiring, and delaying taking Social Security benefits. Being flexible affords more options.

5. Ask for help.

If you want to change your strategy or reevaluate your retirement plans going forward, it may make sense to consult with a financial advisor. It may be helpful to talk out some of the concerns you have about your future financial goals.

Being prepared for the future, whether it is next week, next year, or the next decade, is something Mr. Price encouraged his clients, associates, and even his own children to do. Regularly reassessing where you stand against your financial goals can keep you on track toward retirement.

1“The Gap Between Expected and Actual Retirement: Differences in Cross-Sectional and Longitudinal Evidence,” Paul Fronstin, Ruth Helman, Sudipto Banerjee, EBRI Notes, Nov. 18, 2014.

Important Information

This material is provided for general and educational purposes only and not intended to provide legal, tax, or investment advice.  This material does not provide recommendations concerning investments, investment strategies, or account types; it is not individualized to the needs of any specific investor and not intended to suggest any particular investment action is appropriate for you, nor is it intended to serve as the primary basis for investment decision-making. Any tax-related discussion contained in this material, including any attachments/links, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. Please consult your independent legal counsel and/or professional tax advisor regarding any legal or tax issues raised in this material.

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