Experts urge retirees to 'stay invested' as concerns over devalued RRSPs rise
TORONTO -- Growing economic uncertainty and fluctuating global markets are putting additional stress on Canadian retirees who face both financial insecurity and increased health risks due to the spread of COVID-19.
Unlike younger Canadians who have decades to recoup losses on their investments, many retirees are already living off of the capital and income from their Registered Retirement Savings Plans (RRSP) and other investments, presenting a frightening reality for some.
“When you're a retiree and you don't necessarily have the comfort of that cash influx from sources outside of your portfolio, it certainly adds another layer of anxiety and emotional stress when you're watching these wild price swings,” Kathryn Del Greco, vice president and investment advisor at TD Wealth Management, told CTVNews.ca by phone on Monday.
But financial experts urge retirees not to panic about the devaluation of their investments at this point, noting that the ever-evolving nature of a pandemic means it’s unlikely permanent damage will be done to their portfolio.
“All the market is doing is valuating companies and investments in a very short timeframe,” said Del Greco.
“It's entirely possible that the market has already completely discounted the depth and breadth of the impact of this virus. But it's still too early to be able to say that… we have to let the scenario play itself out.”
Growing concerns about North America’s economic forecast and unemployment rates have already drawn comparisons to the Great Depression.
But Paul Shelestowsky, senior wealth adviser at Meridian, says experts are still holding out hope for a V-shaped market rebound that will have a positive effect on most people’s investments -- retirees especially, providing their portfolios are well balanced and low risk.
“A lot of times you equate your investments to the markets and that's not a good benchmark,” he said.
“A well-balanced portfolio doesn't reflect the market. It should have much, much, much less volatility than what the markets are, especially if you're retired or nearing retirement.”
WHAT SHOULD RETIREES BE DOING NOW?
Beyond optimism, both Shelestowsky and Del Greco agree that retirees should use this time to take full stock of where they are financially. That means going through a full financial assessment of where you and your investments stand -- from a safe social distance.
For urgent matters that require in-person assistance, most of the country’s banks have dedicated their first opening hour to serve seniors and populations with greater health risks. Many financial advisors are also offering virtual or phone appointments.
“What’s most important is your cash flow. We can ride through the ups and the downs of the market with capital, as long as there are investments in the portfolio that are generating enough cash flow to allow you to maintain your lifestyle,” Del Greco explained.
“Look at your risk tolerance and the asset allocation that you have and ask are there companies in here that are probably not going to survive as well as others? High-quality companies with strong balance sheets and dividends -- these are what we refer to as blue-chip dividend-paying stocks -- they are probably one of the best places for retirees to be looking at supplying them good cash flow.”
Shelestowsky notes that it’s not a bad time to revisit your estate plan.
“That’s so they can see how much of an estate are they going to have, how much of a shortfall are they going to have, or when they’re going to have to downsize out of their current home,” he explains.
“They can even look at something like home equity lines of credit to cover shortfalls, things like that.”
WHAT IS THE GOVERNMENT DOING TO HELP?
Both experts agree that the government has taken good steps to ease withdrawal requirements for Registered Retirement Income Funds (RRIFs) as part of its slate of measures aimed at reducing the financial toll COVID-19 is having on Canadians.
Canadians are required to convert their RRSPs into a RRIF at the end of the year they turn 71. They must withdraw a minimum amount from that fund every year at a graduated rate from 5.28 per cent at age 71 to a full 20 per cent for those 95 and older.
The new measures will reduce the amount retirees will be mandated to withdraw by 25 per cent in 2020, reducing the risk of seniors being forced to sell assets in a volatile market.
“No one wants to have to sell shares in a distressed market and impair the overall value of their portfolio just to make a withdrawal that is government-mandated,” said Del Greco.
“That also allows them to manage their taxable income in a more efficient manner because if they don't need to take out that income and incur the tax burden of it this year, they can defer that for a later period.”