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A Perfect Retirement Storm Is Brewing

A Perfect Retirement Storm Is Brewing

By Mike Drak

“It’s a recession when your neighbour loses his job; it’s a depression when you lose yours.”
– Harry S Truman

You are in your early to mid-fifties, married with a couple of kids in university. You are very good at what you do because you have done the same type of work for a long time and it pays well. You have begun to think about your eventual retirement, and your focus now is to pay down debt and save as much as possible for retirement over the remaining 10-12 years.

Things were going well, and then out of the blue the pandemic hit. It changed your world along with all of your carefully thought out plans.

I’ve read somewhere that it’s estimated that 42% of jobs eliminated in the pandemic are not coming back. This is disconcerting as based on what we learned from the 2008 financial crisis near retirees – people who are north of age 50 are at significant risk.

This pandemic will hurt workers of all ages but the older more expensive workers like you are the most vulnerable because of a perception that older workers want too much money, aren’t up to date on certain skills, and won’t mesh well with younger colleagues. Because of that mistaken perception odds are when the economy begins to reopen and people go back to work, older workers like you age 50 and over will be last in line, and it will take a long time for you to find a job and in most cases that job with come along with a significant pay cut.

Because of the lack of work opportunities some people who were solidly middle class will be forced to retire earlier than they planned. They will not be able to maintain the standard of living they are used to in retirement and they will not be happy about that.

Welcome to Retirement Hell!

But if you thought that was bad;

Because of the permanent job loss forced retirees will need to drawn down on their retirement savings sooner than expected which means they can take that financial plan they’ve been following and throw it into the garbage.

But things get even worse.

Because of the pandemic driven financial market meltdown new retirees are facing another big threat – sequence-of-return risk – being forced to sell depressed retirement assets in a down market to finance their living costs. This could be devastating to their long-term retirement security as their savings might not last as long as planned forcing them to live on a lower income.

When you lose your job and are forced to retire you will need to draw down on your savings if you are lucky to have any and you might also be forced to start claiming Social Security (CPP in Canada) early depriving yourself of the bigger benefits you would receive by waiting until later.

COVID-19 has given many employers an excuse

If you’ve read my book “Victory Lap Retirement” or been following my blog posts you know that I don’t necessarily trust companies to do the right thing for their employees. I don’t like saying that – I wish it was different but I have to call it out as I see it.

I’m sure some hiring managers are already thinking about the financial and other implications associated with an older worker contracting the coronavirus and being unable to work for an extended period of time.

I wouldn’t be surprised to read in the paper one day about how a company cared so much about their older employees and their vulnerability to the virus that they felt compelled to make the hard decision to get rid of them. All I can say is with friends like that who needs enemies?

Summary

The pandemic could be the perfect retirement storm for older workers who are too young to retire and are forced out of work. Because of the combination of job losses and investment losses older workers will need to work more years than they had planned, if they can, and based on history that is a pretty big if.

My fear is that many people will be unable to find work and will be pushed into poverty when they retire. People want a comfortable retirement that they can count on, and we really need the support of businesses to find ways to help them achieve that.

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Mike Drak

Author, Retirement Coach and Public Speaker at Victory Lap Retirement
Mike Drak is a thirty-eight year veteran of the financial services and lives with his wife Melina in Toronto, Canada. Mike is the Author of the best-selling book Victory Lap Retirement and also an award winning blogger, retirement coach and public speaker. Mike has also appeared on BNN, CBC Radio and iHeart radio.