Retirement Planning in a Time of Crisis

Retirement Planning in a Time of Crisis

The current health crisis has caused a lot of uncertainty ⁠— from stock prices to daily routines. This, in turn, has forced people to rethink their finances and focus on long-term plans.

Indeed, 4 out of 10 Canadians are anxious about how COVID-19 will disrupt their lifestyle in the future and are thinking of postponing their retirement plans, as many haven’t been able to contribute to their retirement savings since the pandemic started. Despite this, we believe that you can still plan for your future even if you are currently experiencing financial setbacks due to COVID-19.

In this post, we’ll discuss how you can successfully plan for your retirement during times of crisis.

Understand Your Finances

It’s incredibly important to evaluate your finances and gain a full understanding of them ⁠— especially when faced with tough predicaments. In order to be aware of where you stand financially, you should learn the basics of personal finance such as saving, budgeting, and investing.

For instance, learning how to create a detailed budget and sticking to it can help you avoid spending too much money, as well as guiding you to adjust your expenses, so that you can pay more towards your retirement contributions. Additionally, getting a grasp on your financial standing can also help you sort your short-term and long-term goals ⁠— whether it’s paying your debts or using your RRSP to finance your future home. By mastering these concepts, you can help to manage your finances much better and prepare yourself for the future.

Avoid Dipping Into Your RRSPs

It might be tempting to break into your RRSP piggy bank ⁠— especially if you’ve lost your source of income due to the pandemic. However, it is important that you think long and hard before you take any money out of your RRSPs.

Additionally, withdrawing your RRSP early has a lot of implications not just on your future retirement fund, but also on your present tax bill. For one, you’ll have to declare the full amount withdrawn as income in the year you withdraw ⁠— and this can end with you paying a sizable tax bill during tax season. Moreover, you’ll have to pay a withholding tax when you make a withdrawal from your RRSP. Your withdrawal tax varies depending on the amount you took out and the province where you live in, so be sure to look into that before using your RRSPs. You run the risk of losing the benefits of RRSPs and possibly face harsh penalties for dipping into them, so as much as possible, try to avoid prematurely withdrawing from your retirement funds.

Invest in the Stock Market

If you have plenty of savings, now might be the right time to invest in stocks for your retirement. Compared to a savings account, you can reap bigger profits over time to use for your future as stocks can rise significantly over a long period of time. And even if things aren’t looking up for the stock market right now, whatever you invest in it has a lot of time to recover.

So although it seems irrational, you should start buying stocks now while we’re still in a crisis. When choosing where to buy stocks, be sure to look for an organization that has a record of responding and adapting well to market changes. Furthermore, make sure that you diversify your stock investments across industries, locations, and asset classes to mitigate any losses.

Facing a crisis shouldn’t stop you from achieving your long-term plans. Through meticulous planning and smart money management, you can find ways to contribute to your retirement plans and secure your future.

Leave a comment

Comments will be approved before showing up.