1100 13th Street, NW, Suite 1000Washington, DC 20005202.887.6400Toll-free: 800.544.0155
All Contents © 2020The Kiplinger Washington Editors
By Bob Niedt, Online Editor
the editors of Kiplinger's Personal Finance
| April 15, 2020
There’s no doubt all of us are reeling from the one-two punch of immediate financial losses (layoffs, lower interest rates on our savings and more) and the evaporation of retirement funds for the long term.
But this deep recession is especially hard on retirees, including many seniors living on a fixed income and watching their retirement savings wither.
To be sure, it’s not all doom and gloom for retirees. Congress’ rescue efforts include a provision waiving required minimum distributions from individual retirement accounts and other tax-deferred plans in 2020.
Retirees, consider these special financial challenges this deep recession confronts you with -- and how to fight back.
Seniors who panic or simply need income -- for themselves or perhaps in support of adult children who have lost their jobs -- may sell beaten-down stocks and funds at low prices, inflicting permanent damage on their portfolios and increasing the risk that they’ll outlive their savings.
That’s what happened during the Great Recession. The Standard & Poor’s 500-stock index lost more than half of its value during the bear market of October 2007 to March 2009, and IRAs and 401(k) plans lost about $2.4 trillion in value just during the final two quarters of 2008. Investors who rode out the downturn recouped their losses in the 11-year bull market, but seniors who took withdrawals before the stock market recovered were left with locked-in losses.
To limit withdrawals from retirement accounts, scale back your spending, and generate extra income.
Whereas most younger investors reinvest their dividends into more shares (at now-discounted prices), many retirees rely on dividend payouts for steady income during their non-working years. Unfortunately, this recession has already prompted dozens of companies, including these prominent names, to cut or suspend their dividends entirely.
To avoid investing in companies that might eventually cut their dividends, evaluate the balance sheet of any stock you own or are considering buying. Cash-rich companies with little debt tend to be able to withstand lean times, while overly leveraged firms can’t.
A good starting point in your dividend-stock search is the Dividend Aristocrats -- companies that have hiked their regular payouts for at least 25 straight years. There are no guarantees in investing, but well-heeled long-term dividend payers are a better bet for stable income than most.
Are you still putting your faith, and your money, in traditional bank savings accounts? Interest rates on savings accounts have been falling since the Federal Reserve started lowering the federal funds rate last summer. They continue to march downward in the wake of the Fed's March rate cuts (the federal funds rate is now down to zero), which were made in response to the coronavirus crisis.
Yields on certificates of deposit have been tumbling, too. “Unfortunately for savers, we will return to the ultra-low interest earnings that prevailed for years following the 2008 financial crisis,” says Greg McBride of Bankrate.com.
Savers searching for top yields should look to online banks, which offer significantly higher rates than brick-and-mortar institutions. At DepositAccounts.com, you can see the best interest rates available in your area based on the type of account you’d like to open and the amount you intend to deposit.
The Kiplinger Letter is forecasting that the 2021 Social Security cost-of-living adjustment will be below 1%. The COLA is tied to inflation, and the prices of goods and services plummeted in March; prices for travel and any activity that involves large gatherings (even restaurant dining) will continue to be depressed.
The COLA, which will be officially set in October 2020, is down from the 1.6% adjustment that retirees and other beneficiaries received at the start of 2020. That was itself a drop from 2019, when the COLA was 2.8%
Retirees steered back to the workforce by this recession may struggle to find work. If the Great Recession is any guidance, the post-coronavirus economy will be a challenge for older workers. An Urban Institute study published in 2012 and titled Age Disparities in Unemployment and Reemployment During the Great Recession and Recovery noted it took nine months or more for workers age 51 to 60 who got laid off during the Great Recession to get hired. In contrast, it took an average of only six months for unemployed workers age 25 to 34 to find work.
Citing that study, Forbes recently noted “ageism and age discrimination remain real and widespread. The belief that older workers aren’t tech savvy is ingrained in employers, causing a barrier for the new world of telework. What’s more, hiring managers may steer clear of older job candidates, fearful that they may be more susceptible to the coronavirus.”
On their resumes, older workers should include only the most recent and relevant jobs; leave dates off wherever possible. Show that you are willing to undertake training and learn new skills.
In interviews, you might not be asked directly whether you are overqualified or uncomfortable working with younger employees. But raise the topic of age yourself, if you sense it might be an issue. For example, describe your advantages, such as bringing maturity to the job and a willingness to put in extra hours when needed. Cite examples of how you have brought a team together when things got tough. Explain that you'll be a supportive business partner and will use your skills to help the company turn profits. Use the pronoun "we" to show your collegiality.