- September 29, 2020
In the face of the current COVID-19 pandemic and ensuing economic fallout, many persons have had to re-evaluate their finances. Even the most prudent and disciplined retirement savers are concerned about the economy and the prospect of a recession that may last for some time.
The million-dollar question - how can you protect your retirement portfolio in these challenging times? Believe it or not, you have more power than you realize when it comes to protecting your nest egg. These five steps will help you stay the course even in an economic recession.
STEP 1: Increase Your Savings
Experts typically advise maintaining an emergency fund with three to six months of living expenses, but it is difficult to predict how long an economic downturn can last. If you are able to, we recommend that you increase your cash savings to at least one year’s worth of expenses and shop around for the savings account paying the highest rate. Doing so will lessen the financial impact should an unexpected emergency occur.
STEP 2: Delay Claiming National Insurance Benefits
Even though you can collect retirement benefits as early as age 60 in The Bahamas, we highly recommend that you delay collecting for as long as you can. NIB is guaranteed income for life, regardless of the health of the economy and regardless of how long you live. So, it’s smart to maximize this income stream in case your personal savings don’t go as far as you had hoped in an uncertain economy. The best way to do this is to delay claiming your benefits until age 70 if you can.
Here’s why. Although you can begin claiming NIB at age 65, waiting for longer means greater monthly payouts. For example, let’s say you retire at age 65 and begin collecting NIB at a benefit of $1,050 per month. If you wait until age 67, you’ll receive a 14 percent greater benefit, at $1,140 per month. If you have the patience to wait until age 70, you’ll receive the maximum payout and a 35 percent monthly increase – $1,418 in this example. The decision to delay claiming NIB from age 65 to age 70 will result in an increase of almost $400 per month.
STEP 3: Utilize Guaranteed Income Sources
For those persons wanting their retirement savings to be recession-proof, take advantage of guaranteed income sources that won’t be impacted by a volatile market. Having a cash reserve means you can ride out a recession while having a sense of security from an income stream you can continue to rely on.
An investment in the RF Guaranteed Fund is also an excellent option. It has a cash value that grows over time, making it a great way to fund a cash reserve that you can rely on in a down market. Having cash on hand protects you from having to sell at a loss in an economic downturn.
STEP 4: Diversity is Key
While it is impossible to alleviate all market risk, it’s still important to manage that risk. Proper diversification allows you to lower your overall risk and keep your portfolio healthy regardless of the economic environment. Essentially, this means building checks and balances into your portfolio. Investing in a well-diversified portfolio of mutual funds is a first step. Mutual funds also have the benefit of multiple investment strategies, low management costs, and easy entry and exit.
STEP 5: Seek the Help of a Financial Professional
Whether the economy is booming or uncertain, it’s always a good decision to work with an investment professional. The best financial advisors take the time to learn and understand your goals, which allows them to guide you and present options that best serve your individual needs. Together, you can assemble a strong financial plan that will allow you to weather any financial storm.
If you have questions on what to do about your pension or finances, you can speak with me, Cleora Farquharson, at 603 6045, or email: cleora.farquharson@rfgroup.com, to talk about your financial options.