As we emerge from severe social lockdown following the global pandemic, it’s worth reflecting on what we’ve learnt.
COVID-19 has been a dramatic shock to the system. To our life and to our finances. It reminded us of the need to be prepared for the unexpected. And to adapt rapidly to new conditions.
Australia again proved itself the Lucky Country. Protected by our island borders and a strong community-first public policy response with tough decisions made early, we’ve had low infection rates and thankfully low deaths (by international standards).
Everyone will have their own views on lessons drawn. I’ll put my short version into 2 categories: life and finances – the two sides of the retirement coin.
Life
A sharpened sense of what’s really important
Being “locked down” created an unusual clarity about what you really valued and what you missed.
For me, that’s family and friends. Being comfortable the family was safe was all important. And you wanted to know your friends were okay, too.
Missing grandkids you couldn’t visit was the biggest give up…even more than not seeing my AFL team in action or playing golf (banned in Victoria for a while). Knowing you might not see the grandkids for some time is the biggest pain….No trip to see the granddaughters living in Norway this year. More time on skype instead.
(The granddaughters on Norwegian National Day (May 17))
Working on this business is still important to me…but, what do you know, I can do my work from home better than I ever thought. So can my colleagues.
Finances
The pandemic’s impact on markets also sharpened the mind on how you’re set up to provide income in retirement. March’s rapid 37% decline in the Australian share market and similar routs across global shares really brought the question of “how much investment risk do we want to take?” into sharp relief.
Fortunately, for Retirement Essentials clients, the Age Pension is a “rock-solid” base for retirement income. And, for the many Retirement Essentials’ clients on the part Age Pension, the decline in asset values meant an increase in the Age Pension payout. With the taper rate adding(reducing) the Age Pension $78 per year per $1000 of loss(gain) in assets, that can make a big difference in tough times. The means-test acts like a sort of “automatic stabiliser” increasing the Age Pension when the assets take a hit.
In addition, the government introduced two payouts of $750 each for pensioners. That was particularly welcome as cash deposit rates suffered further painful declines as the Reserve Bank lowered interest rates.
And then share markets have recovered nicely as we made progress getting the outbreak under local control. So far at least, the “don’t panic, stay the course” mantra on share market investments seems to have been good advice again, although there’s still some way for the Aussie share market to get back to February levels.
Take nothing for granted
As the breakout in my home state of Victoria reminds us, there’s always the risk that a second wave of infections starts and unsettles us again, both our lives and our finances. We have to stay resilient and adaptable and take care of each other.
So, the broad lessons include:
- Be prepared for the unexpected. With long life expectancies, we may be retired for a very long time. Many different unexpected events will happen.
- Get the foundations of your retirement income plan in place. Nothing is more fundamental than the Age Pension and for those who don’t qualify, the Seniors Health Card.
- Understand what risks you’re taking in your investments. You probably can’t live on interest from cash deposits — which aren’t keeping up with inflation — so you’ll need to take some investment risks to get higher income. Knowing how much risk you’re comfortable with is something that’s tested by shocks like the pandemic.
- In the end, life’s more important than finances. Enjoy it while we have it!
