Has COVID-19 Triggered a Retirement Rethink?

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There are only two tragedies in life: one is not getting what one wants, and the other is getting it. —Oscar Wilde

While a recent National Institute on Retirement Security survey found roughly half of Americans are more unsettled about their retirement considering working longer, others seeing how fragile our mortal bodies are want to retire earlier. Life is short, enjoy it.

Columnists Carla Fried and Benjamin Curry suggest these crucial moves. One is to delay taking Social Security benefits until age 70 to maximize the monthly payout. Another is to review your asset allocation examining sources of income and having a stash of cash or short-term bonds to access to close any income gaps. 

Next is a term familiar to many in our audience–the sequence of returns risk. Curry and Fried write, “With the stock market at record highs, it wouldn’t exactly be a shocker if there were a bear market on the near-term horizon. Anyone retiring soon, or newly retired, should therefore carefully consider how to avoid drawing down their stock portfolio during a bear market. This is where that cash hoard of at least two years of expenses can ride to the rescue. Another strategy you might consider is to open a reverse mortgage line of credit and only tap it during bear markets so you can avoid stock withdrawals.” 

While it’s encouraging to see reverse mortgages embraced as a hedge against taking realized stock losses, retirees should be mindful that what goes up does come down. We are long, long overdue for a substantial market correction and retirees should reexamine their market risk. 

Speaking of market corrections, stocks are not the only asset class poised for a reset. Today’s housing market is red-hot. Ironically the Covid-19 pandemic didn’t slow the real estate frenzy but only accelerated it as home appreciation rates soared higher. 

And it should be noted, just as there’s a sequence of returns risk with stocks the same can be said of real estate. Nothing’s worse than wanting to tap into your home’s value only to have waited until such a strategy is no longer viable. However, two factors can torpedo such plans, lower home values and higher interest rates- both which are a strong possibility thanks to a backlog of mortgage forbearances and inflationary signals. As housing inventory loosens once unavoidable foreclosures hit the market, and the Fed raises interest rates in an attempt to avoid excessive inflation older homeowners could find they no longer qualify for or desire a reverse mortgage. 

The good news is we have today. The present is a wonderful gift. For the older homeowner it may be the opportunity to retire now utilizing a reverse mortgage instead of working longer, or until they die. For others it could be a means to secure a source of cash should the stock market spiral downward this spring or next year despite their best planning. The possibilities are endless for those who take the initiative before market conditions may deny them such opportunities.