This time it’s different – I hear this a lot from my clients who are worried about the impact of the coronavirus pandemic on their financial future. Their worries are understandable; it can be difficult to maintain a sense of confidence and calm when there’s so much volatility in the markets and uncertainty about what’s going to happen next. And with the U.S. officially in a recession, it’s no wonder why many people feel anxious about the state of their financial plans.
As financial advisors, a large part of our job is to reassure clients and provide perspective during times of financial uncertainty. One important thing we often like to remind clients is that most financial plans account for economic downturns. Many financial professionals have access to planning tools that stress-test financial plans for such events.
Still, you may have experienced some setbacks to your financial goals during this crisis. After all, no financial plan is foolproof, and no strategy can mitigate all risks. But that doesn’t necessarily mean your financial plan has become irrelevant. Plans can change.
During a crisis, fear can sometimes paralyze us. But, rather than leave your plan to chance, consider reaching out to your team of trusted advisors. Together, you and your advisors can schedule a time to review, revise and refocus your financial plan, helping you to regain a sense of clarity and control over your financial life.
The coronavirus pandemic has changed many aspects of daily life – from the way we work to the way we spend time with our family and friends. Chances are your financial plan has probably seen some changes, too.
This is why it’s a good time to sit down with your financial advisor to review your plans and get a clearer picture of your current financial situation. For example, have there been personal changes in the wake of the pandemic that might require you to update the assumptions or projections in your financial plan?
Your advisor can work with you to see if you need to adjust your spending levels, investing strategies or retirement plan to help you stay on track and achieve the financial future that you want. In some cases, changes may not be necessary! The point of conducting a review is to check in to see where things stand for you personally and make any adjustments as necessary.
Whether you need to make changes depends on how the pandemic has affected you and your financial goals. Some might feel comfortable leaving their plans as they are, while others might want to adjust certain details within their plans in order to stay on track. These details might include things like how much you’re spending or saving; your retirement date; retirement income expectations; or overall asset allocations.
Even if you don’t need to make any big changes to your financial plan right now, you may still want to discuss any specific concerns you have about the future with your advisor. For example, if you are currently employed and you’re worried about being furloughed or losing your job during an economic slump, your advisor may be able to suggest some changes in your budget or other steps, such as reviewing your benefits coverages at work, to help you financially prepare for the possibility of a job loss. Your advisor can also help you understand your lending options should you ever need to take out a loan. Having a game plan in place can help reduce some of the financial stress or pressures you may be feeling.
For those who may be retiring soon, news about the recession can be especially nerve-wrecking. If retirement is around the corner, you may worry that you won’t have as much time to make up for any market losses in your portfolio. You may also worry about how retiring during a recession could negatively impact the overall health of your retirement funds (i.e. sequence-of-returns risk).
Again, your financial advisor can help you better understand and address these retirement-timing concerns, identifying changes you could make in your plan to help mitigate specific risks. This is where your advisor may remind you that just because you’re retiring doesn’t mean you will need to use your entire nest egg on day one. Typically, you’re not going to be withdrawing all your funds at once – it’s a gradual drawdown. In other words, you’re staying invested over the length of your retirement, and your assets still have time to work for you. In this way, even retirees can be long-term investors!
Sometimes a financial crisis can either paralyze us from action or cause us to panic and make rash, emotional decisions. These instincts are natural, especially when we’re distracted by short-term volatility instead of focusing on long-term growth. Some clients, out of fear, might be tempted to abandon their long-term plan to avoid short-term losses. When it comes to financial planning, it’s important to remember to take the long view and not make decisions based on a snapshot of what’s happening in the markets at this particular moment.
While this current crisis may feel “different” because it’s happening against the backdrop of a pandemic (the first for many of us), bear in mind that market volatility and economic downturns are nothing new. They are a normal and expected part of the economic cycle (even though their triggers often differ from case to case). This is why most financial plans already account for these events and adopt various strategies to minimize certain market risks and your exposure to them.
If anything, the pandemic should encourage you to refocus on your financial plan and take a more comprehensive look at your financial life, figuring out what’s most important to you – in both financial and non-financial terms.
This means taking some time to reflect and talk to your advisor about how your priorities might have changed or how you might be thinking about your future differently. For example, social distancing may have helped you realize that you may not need as much for retirement as you planned. Perhaps, you may have learned that you can still have the lifestyle that you want while cutting back on certain luxuries or discretionary expenses (e.g., dining out, vacationing, etc.). In other words, there may be some recent changes to your financial life that you’d like to make permanent after this crisis ends.
While a crisis like COVID-19 can really test our financial plans, it also gives us the opportunity to refocus our financial life and think about what we truly want our future to look like. After reviewing your financial plan with your advisor, you may find that it simply needs a little fine-tuning to bring it back on track. Keep in mind that even small changes now can have a great impact on your financial future.
United Capital Financial Advisers, LLC d/b/a Goldman Sachs Personal Financial Management (“GS PFM”) is a registered investment adviser and an affiliate of Goldman Sachs & Co. LLC and subsidiary of The Goldman Sachs Group, Inc., a worldwide, full-service investment banking, broker-dealer, asset management, and financial services organization.
The information contained herein is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered investment advice. GS PFM does not provide legal, tax, or accounting advice. Clients should obtain their own independent legal, tax, or accounting advice based on their particular circumstances. Please contact your financial adviser with questions about your specific needs and circumstances.
Information and opinions expressed by individuals other than GS PFM employees do not necessarily reflect the view of GS PFM. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice.