Mr. Sharma seemed quite tense while having a morning walk, which was either his work stress or retirement or something else maybe. I tried confronting on the same; “Hey Buddy, you look worried. Is there something you wish to share with me?” “Oh yes! I am not quite sure how to share my concern. But I can talk to you as a friend and maybe you can advise me as my Financial Planner.” Mr. Sharma and we both share a professional relationship.
Then he went on about his concern about retirement planning and also was unsure about COVID’s impact on retirement planning. He is a private sector employee earning decent earnings but the uncertainty and panic clouded his mind about his retirement planning with COVID on rising.
“I have worked for almost 15 years for XYZ Ltd. and would be willing to continue for 5 more years. But with this COVID 19 impact on the global economy, I am not sure whether I would be able to survive the market.”
It is indeed true that these are uncertain times and we should strive to look for any fallback alternative. I assured him to help on Retirement Planning considering COVID 19 Impact.
Let’s see why Mr Sharma is worried about his Retirement Planning even when he is still investing and try to come up with a suitable retirement planning.
Why is that you should do the Retirement Planning? There are two basic reasons:
- To maintain the current lifestyle
We may have reached our goals of owning a car or enjoying foreign vacations. But when we have retired and don’t have any stable income, how are we supposed to maintain this lifestyle? Retirement Planning helps us to invest well in advance considering the amount we wish to receive in future.
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- Inflation factoring and other relevant disruptions
Inflation is the biggest wealth killer if we don’t plan our retirement considering the Inflation impact on the same. Also, the markets are always subject to risk. Now we do see a visible impact on the economy due to pandemic, which has resulted in job loss, lesser production and lesser disposable income.
How COVID 19 has impacted Retirement Planning?
- Job loss or pay cuts
Covid 19 has affected the Job markets since lockdown resulted in shutting off of various businesses like hotel businesses, schools, colleges, Gyms etc.
A very huge section has suffered business losses or has suffered pay cuts or have lost their jobs, leading to lesser cash flows towards retirement planning.
- Increased medical and sanitization expenditure
Most of the businesses are trying to keep up with Unlock, however, the increased burden of the sanitization and medical expenditure (medical insurance) has again impacted the disposable income.
- Impact of Moratorium and loan restructuring
The government had declared Moratorium for all types of loans, however, with Unlock 1 and 2, banks are also expecting a payback. It is unsure how they would restructure the loan considering the EMI deferred in the Lockdown period.
- Stock markets uncertainty
Stock markets kept tumbling due to stress caused by COVID 19 induced Lockdown. However, again the markets started to surge with Unlock 1 and 2, leaving the retail investors in awe. This has created a what-if question in the investor’s mind.
How Mr Sharma Plan his retirement in the wake of COVID 19 impact in the Retirement Planning?
- Mr Sharma should try to defer retirement or try to earn some extra income in case of pay cuts
Mr Sharma was thinking of early retirement with a small business set up within the coming 5 years in a Pre-COVID setup. However, COVID 19 impact is yet to subside and it would be better if he could postpone his retirement by at least 5 more years to compensate deficit income.
He could as well try to look at some simultaneous earnings options if he could manage the same. This will help him balance his Corpus investment in retirement Planning even in COVID 19 scenario.
- Mr Sharma should reassess his Risk Appetite and Investment threshold
With the increased medical premium for COVID cover and sanitization expenditure, Mr Sharma needs to revisit his existing investment plan towards Retirement Planning. The interest rate of bank deposits have soared low and markets are beaming due to news of COVID vaccine.
However, it would be pertinent to assess whether he could take the risk to invest in markets or mutual funds at this juncture.
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- In no case, the contingency funds are to be touched
Every family maintains a contingency fund which might be in the form of Fixed Deposits, Gold or some government securities. Mr Sharma should not divert these emergency funds towards allocating his retirement planning.
- Mr Sharma will need to reduce unnecessary expenditure
Dining outside or multiple OTT platform subscriptions were okay in Pre-COVID scenario. However, Mr Sharma should cut down on all unnecessary expenditure which would burden his investment portion.
When there is cut back on the expenditure, Mr Sharma could easily tap the usually drained out funds which could be easily allocated to Retirement Planning.
- Mr Sharma shall think of loan restructuring
RBI had come up with the facility of deferring the EMI payments for a certain period of time considering the COVID impact. Now, the interest rates have soared much on all loans. This calls for loan restructuring and the deficit in retirement planning would be filled in with the money so saved in interest.
- Never put all eggs in one basket
Once Mr Sharma is done with Risk profile assessment, he can think of diversified investment towards retirement planning. It is a seen and verified fact that bank interest rates are diving lower and markets are shining.
If emergency funds are already invested in safe instruments, then Mr Sharma should think of setting aside funds and investing in Mutual Funds and Stocks. The COVID cover is also necessary until vaccination materializes. This will cover the financial health as well as will not hamper the Retirement planning aspect too.