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The covid-19 pandemic is a black swan event like no other. For many, it has meant job losses or reduced earnings. Many of us have had to dip into our retirement savings to meet expenses or costs of hospitalization of one or more family members suffering from covid. While younger professionals have time on their hands to recover, for many nearing retirement, these events could have derailed retirement plans.
However, there are ways you can salvage your retirement savings.
Review your retirement plan: “One has to review one’s retirement plan at regular intervals by following proper asset allocation,” says Deepesh Mehta, founder and chief consultant, Happy Investor Finserv LLP. Ensure that you take help of a financial adviser during this exercise. Once you are done with a review, you can make any adjustments as necessary. Let us look at three probable situations you may be in and what you should do.
You have lost your job: “In case of job loss, always ensure that emergency funds equivalent to your six months’ expenses is in place,” says Ananth Ladha, founder, Invest Aaj for Kal. If required, redeem any equity investment, or liquidate fixed deposits to build the required emergency corpus. On the other hand, immediately stop all your all your regular investments like SIPs for the time being. However, ensure that your EMI and insurance premiums are on course.
“Also, remember that Provident Fund balance would be settled by EPFO in case of unemployment exceeding two months,” says Prashant Singh, vice president and business head, compliance payroll outsourcing, TeamLease. However, this should be the last resort. Instead, you can consider a partial withdrawal if you require funds.
Your salary has been cut: In this situation, you should take a hard look at your expenses and cut down as much as possible. EMIs and insurance premiums should continue. “You should either reduce the amount required for a goal or skip some goals which are more in the form of luxury and focus on the important ones,” says Ladha.
You have had to dip into your retirement savings: You should not panic and take any hasty decision. Nor should you target higher returns to make up the loss. Here again, it is important that you cut down on discretionary expenses as much as possible and channel all of it into retirement savings. Finding an additional source of income, though not always easy, is also a good idea.
For equity investments: When you are three years to your goal, you should plan and shift your complete amount which is allocated to that particular goal into debt funds. This applies to retirement too. “Don’t be greedy in expectations of higher returns,” says Ladha.
However, if you have five or more years left for your retirement, stick strictly to your SIPs. “As far as lump sum investment is concerned, at present valuations it is better to spread it over 15 months to reduce volatility via a systematic transfer plan (STP) from your liquid funds,” says Ladha.
For debt investments: There should be no worry here; but your expectations should be low. “At present, yield to maturity (YTM) of debt funds ranges between 5% and 7%, so your returns expectations should be YTM less expense ratio. Don’t be guided by past returns of debt funds,” says Ladha. Mehta adds, “Interest rates are very low, inflation is high and still government is focusing on recovery of the economy; better to focus on floating rate debt, low duration debt at this point in time.”
Even if the pandemic has impacted your retirement corpus, do not panic. Sit with your financial planner and your spouse and re-plan it properly.
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