Has COVID Clouded Your Retirement Picture? 3 Tips to Plan Clearly

By John L. Smallwood, CFP®

Some people planning for retirement may do most of the right things in terms of saving and investing. But they don’t have a crystal ball and cannot foresee exactly how much money they will need in their non-working years – or for how long.

That uncertainty – magnified by the financial effects of COVID-19 – is one reason why it’s important to always keep the distant future in mind when planning and to consider all options that address those potential needs.

Too often, people are siloed in their view of their financial plan rather than focusing on the big picture. Sometimes, it’s because they believe in a pitch that one magic product or investment is going to save their retirement.

The pandemic causes some people to look for fast solutions, but there is no magic wand that you can wave and save your financial plan. The “magic” that is going to help you is to put multiple products and multiple strategies together in an integrated way that is unique to you.

Those either starting or reevaluating a financial plan should consider these points:

• Avoid cookie-cutter solutions.

  Because every person’s circumstances are different, a one-size-fits-all approach in financial planning doesn’t make sense for the future retiree. Whether it’s a mutual fund, insurance policy, annuity, a stock option, 401(k), or something else, the truth is that banking entirely on a single product or type of investment is setting you up for financial failure.

There are always popular products being pushed, but cookie-cutter solutions don’t take into account that every client has different financial pressures. Single products are often focused tightly on rate of return, but they don’t look at everything that’s happening in a person’s life or at erosion principles, which are actually taking away more wealth than is being accumulated in many cases.

• Know how to minimize market volatility.

  Having measurable goals and a realistic view are important to success with a financial strategy. And part of that strategy includes understanding and minimizing the impact of market volatility on your money. One way to make a sense of it all is to know the difference between average rate of return, sequence of returns, and actual return. Average rate of return is over the life of an investment. Sequence of returns is the order in which your investments provide you with a return. Actual return is the actual amount of money gained or lost during a quarter or year compared to the initial value of an investment.

• Don’t get caught up in chasing returns.

  Financial success does not come from chasing returns or selecting a magic product or asset class. It comes from having a balanced plan, and then stress-testing that plan for weak areas to see how taxes, feeds, inflation, medical expenses, market volatility, college expenses and other variables can impact wealth potential. People who chase returns typically buy an asset class, or they buy a fund based on its past performance. If it doesn’t do well, they sell it, and they buy the next hot-performing fund. That’s how they fall into the trap that keeps eroding their wealth.

To be successful with your retirement plan, you need to keep an open mind, understand your uniqueness, and not follow the crowd in terms of what are the right solutions for you.

John L. Smallwood CFP®  is a senior wealth advisor (www.johnlsmallwood.com) and president of Smallwood Wealth Management and affiliated companies, providing investment consulting and financial plan design for corporate executives, entrepreneurs, and professionals. He is the author of It’s Your Wealth – Keep It: The Definitive Guide To Growing, Protecting, Enjoying, and Passing On Your Wealth, and a previous book, Five Ways Your Wealth is Under Attack.