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7 Financial Planning Steps for Pre-Retirees and Retirees to Take During COVID-19 Thumbnail

7 Financial Planning Steps for Pre-Retirees and Retirees to Take During COVID-19

For many people across the world, 2020 has been an unprecedented time filled with uncertainty and new ways of life. 

Here in Long Island, things are starting to slowly re-open — yet many people are still spending most of their time at home to keep themselves and their communities safe.

I thought now would be a great time for those who are still at home and are closing in on retirement (or are already retired) to re-evaluate their finances to make sure they’re still on track to retire right. 

But what areas of your finances should you re-visit and consider when preparing for retirement? 

Read on to learn 7 financial planning steps you can take now to help you stay the course with your retirement and financial life!


1. Review Your Expenses

Right now, most of us who aren’t essential workers have been spending most of our time at home — meaning that we aren’t going out and spending money like we usually would. 

Because of this, you might experience a decrease in your expenses during this time. 

That’s why now is a good time to reevaluate what you’re going to be doing in retirement and how that will affect your spending. 


  • Will you travel more?
  • What restaurants will you be eating at and how often?
  • How will you spend your days?
  • Will your expenses increase or decrease?

By looking ahead, you can ask yourself how things will change in retirement and start to get a good handle on what to expect. 

Plus, having a good handle on your expenses is the first step of any good financial or retirement plan. After all, if you don’t know what you’re going to be spending, how can you make sure you’re not going to run out of money in retirement?

Then, once you know what your expenses are, you can look at your income or cash flow to determine where you will get that money from.


2. Know Your Withdrawal Rate and Adjust Accordingly

There are a lot of rules when it comes to withdrawal rates, like the 4% rule of thumb. This rule suggests withdrawing 4% of your portfolio value each year so that you won’t run out of money in retirement. 

However, when looking at withdrawal rate guidelines, remember: They are just guidelines. A lot of people live by them when they should really just use them as a general frame of reference while adjusting for their specific circumstances.

There are many different factors to account for when figuring out your withdrawal rate, including:

  • Interest rates (now and in the future)
  • Tax rates (now and in the future)
  • Your life expectancy — and the future cost of your healthcare and housing

It’s important for you to consider all of these factors when determining your withdrawal rate and an investment strategy that will make sure you don’t run out of money.


3. Optimize Your Money During Times of Low Interest 

Now that the markets have started to recover, many people are looking to move some of their money into something that’s safer and that offers good interest rates.

But what can you do when interest rates are down? Right now, the 10-year treasury yield is less than 1%, while some online savings banks are yielding 1.6%. That means that if your withdrawal rate is 4%, and there’s 2% inflation, the value of your money is going down by 5%.

We’ve come up with a new program called Max My Interest, which is a FDIC-insured program that allows you to link your checking account with the top online savings banks; each month, your money will automatically move to the highest yielding accounts.

During times of low interest, you can also look towards the bonds part of your portfolio. Look at the credit risk and duration risk. Also, consider whether you should be in taxable or municipal bonds right now, as some municipal bonds are paying higher than some of the taxable bonds. Consider how you can earn the highest rates of return within the risk that you’re comfortable with.

4. Reassess Your Asset Allocation

People are now living longer than ever. Even if you retire at 65, you or your spouse could live until 90 — that’s another 25 years of life you need to prepare for. 

Because of this, you can’t just have all your money sitting in cash earning 1.6% or less. Instead, you need to know your time horizon, risk tolerance, withdrawal rates, and begin a risk tolerance assessment.

One approach to asset allocation is our bucket strategy, which provides 10 years of safe investment types. That way, all your equities aren’t caught up with the day-to-day ups and downs of the markets. 

This approach has also helped retirees and pre-retirees go through volatile times, like what we’ve seen recently, and to rebalance their portfolio to get back to where they want to be with their allocation. 

Remember: if you have a strategy in place and things change, don’t just do nothing. You want to try and buy low and sell high. And as your portfolio changes, rebalance it according to your risk tolerance. 


5. Revisit Your Equity Allocation

Even within the stock market, you need to be diversified and allocated. This can be challenging for a lot of people because over the last 10 years, there have been certain asset classes that have significantly outperformed others. 

But you don’t want to just look at the last 10 years of data when choosing your asset classes. Instead, look at a longer span, like the last 15 or 20 years. By doing that, you’ll see how some of these classes change over time and why you don’t want to eliminate them all.

For example, look at value versus growth stocks. In the last five to 10 years, growth stocks, like Amazon and Facebook, have been outperforming. But will that trend continue forever? Well, in the last month we’ve seen value stocks start to outperform. That’s why you want to have an allocation and game plan with diversification for all these strategies so that you’re not left with the one asset allocation that underperforms.


6. Consider Your Tax Planning

Tax planning can make a significant difference over the span of your lifetime. After all, it's not about the money you earn, it’s about the money you keep. 

The first thing to look at when considering your tax planning is which accounts to withdraw from, like your IRA or Roth accounts, and to maximize where you’re withdrawing from a tax perspective.

In addition, determining when to use your money gives you a lot of tax planning opportunities. For example, there are tax benefits you can get if you delay taking your social security. Plus, if you’re retired and in a low tax bracket, there are also certain things you can do, like a Roth conversion, that can help you save money on taxes.

Some other things to look at include:

  • Tax law changes
  • Tax loss harvesting
  • Qualified vs non-qualified dividends 
  • Capital gain rates

These are all pieces that your advisors should be looking at and coming up with strategies around to help you maximize your tax planning. 

And if you’re doing it on your own, you should know about all of these tax rules. Why? Because they can save you thousands, if not hundreds of thousands of dollars.


7. Have a Retirement and Investment Plan

Last but not least, make sure you have a plan.

Studies have consistently shown that if you have a plan, your success rate goes up. 

So rather than just shooting from the hip, have a financial plan and an investment strategy. 

On top of that, it’s also important to adjust your plans and strategies as things change with your financial picture, tax laws, and the markets.

Not only will having a plan in place help your chances at succeeding, but it will also help you avoid knee-jerk reactions to market swings and helps you take the emotion out of your finances.


If you’d like help with your plan, learn more about our firm right here on our website, or reach out to us at (631) 293-2806. We'll show you how to retire right!