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3 Ways Coronavirus Should Permanently Change Retirement Planning

By Christy Bieber – Jun 17, 2020 at 5:34AM

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You need to be ready in case another crisis occurs.

Coronavirus is going to forever change many things about the world, from how we travel to how comfortable we feel shaking hands. And one of the most important things the virus is likely to change is the way we save for retirement.

COVID-19 showed how an economy can turn on a dime, how volatile markets become, and how fast record-low unemployment can turn into more jobless claims than ever. Because it showed that black swan events can and do happen, it should forever change the way Americans prepare for the future. Here's how.

A retirement savings plan notebook with eyeglasses, calculator, pen and cup of coffee

Image source: Getty Images.

1. It should increase savings rates during the good times 

For most people, coronavirus is making it harder than ever to put away money. In fact, 61% of Americans indicate the financial fallout from COVID-19 has affected their ability to save for retirement

It's understandable that unemployment and economic chaos would make it harder to invest. After all, if your hours are cut or you lose your job, you may have no extra cash. The problem is, of course, that if you take a break, it will just get harder to hit your savings goals since you'll have to make up for lost time.

That's why it's so essential to invest a little extra during the good times. If you're not just putting away the bare minimum needed to achieve your goals, you can get ahead of schedule on your savings efforts and won't have to worry so much if a crisis causes you to put the pause button on saving. 

2. It underscores the importance of saving for medical expenses

Medical care in retirement is very costly for most seniors. In fact, some estimates suggest the average 65-year-old retired couple will spend around $296,000 to cover out-of-pocket healthcare expenses in retirement even if they're covered by Medicare. 

And that's just with typical care expenses. The pandemic demonstrates how quickly and unexpectedly public health crises could crop up and cause costly problems for seniors. Sadly, COVID-19 may not be eradicated anytime soon and is likely to remain a big threat to the elderly. And many experts warn that this won't be the last public health disaster as antibiotic-resistant superbugs are on the rise

Retirees need to be prepared in case they face big medical expenses, due to a novel virus or an antibiotic-resistant infection or because they develop more common conditions such as heart problems or cancer. COVID-19 serves as an important reminder that good medical care can be lifesaving but often comes at a big price. And while Medicare covers some of the costs, there are co-pays, coinsurance charges, and coverage exclusions -- including for most nursing home care. Before you retire, you need to be ready to pay up if something goes wrong. 

3. It shows why pre-retirees need liquid cash

From 2009 to 2020, the market experienced its longest bull run in history. Then things turned on a dime. Few people could have predicted that a novel virus would crash the markets, but what is predictable is that something inevitably will. 

For seniors, withdrawing invested funds after a market correction could have a devastating long-term impact because it could mean locking in losses and missing out on the recovery. Retirees need to be able to give their investments time to recover by waiting for a rally, but they can do that only if they've got money to live on in the meantime.

Having three to five years of liquid cash can cushion retirees against market volatility and ensure they're prepared to survive pandemics, recessions, burst bubbles, and whatever else the market throws at them. 

Retirement planning will never be the same

Coronavirus was an unprecedented crisis, the likes of which most of us haven't experienced in our lifetimes. These types of black swan events can shape your financial outlook for a long time to come. Take the lessons the virus and great lockdown have taught us to heart and make sure you're better prepared for retirement than you otherwise would have been. 

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