5 Things You Need to Do NOW to Protect Your Financial Plan from COVID-19
According to a recent report by the AANA, over 50% of practicing CRNAs planned to retire by 2022, but the financial impacts of COVID-19 may be threatening those plans for many. Across the country, thousands of CRNAs are now nearing retirement with significantly devalued portfolios. Naturally, they are fearful for their future. CRNAs in this position may be wondering: How will this affect my plans? Will I run out of money if I decide to retire now? How long will it take my portfolio to recover?
Even if you are a CRNA within 10 years of retirement, there are still steps you can take to keep your financial plan on track despite the financial impacts of COVID-19.
1) Review Your Allocations to Mitigate Risk:
It’s typical for steep market corrections to throw even a perfectly balanced portfolio off track. The result is often an over-concentration in a single asset or asset class that could expose your principal to significant risk of loss. Stocks are the perfect example. Stocks are generally the riskiest asset CRNAs can hold during a volatile market, so you will want to make sure that they aren’t comprising too much of your overall portfolio.
Then, you’ll need to dive deeper into each sector to ensure you have a diversified mix of assets within each class. The goal here is the same: to balance a reasonable amount of risk with anticipated returns in such a way that you do not lose too much principal in the years leading up to retirement. The sooner a CRNA plans to retire, the more conservative your portfolio should be.
2) Be Wary of Sequence of Return Risk:
Sequence of return risk refers to an event where the market yields negative returns just as a CRNA is retiring or shortly thereafter. Essentially, this causes CRNA retirees to drawdown more of their retirement savings at a time when holdings are yielding negative returns. Because you are liquidating more assets when the market is down, you will have fewer investments to grow during the next market upswing. This often reduces your overall portfolio longevity – as well as decreases your retirement income.
There are three options for managing this liability as a CRNA:
- Continue working until the market recovers or consider picking up a 1099 or part-time CRNA position. After all, as high-income earners, the average CRNA retires earlier than many other professionals.
- Choose to live off other sources of income until your portfolio shows a more favorable balance.
- Temporarily adjust your drawdown rate and live on less than anticipated until the market rebounds.
3) Analyze Your Anticipated Cash Flow:
Cash flow planning sounds simple enough, but for many CRNAs who have enjoyed (and gotten accustomed to) healthy incomes during several decades of working, it’s an area of your financial life that you should review. As you prepare for retirement, this practice will be fundamental in protecting your savings and ensuring you have accumulated enough wealth to live the way you anticipated based on your financial plan. This practice involves mixing and matching the resources you have amassed in order to generate the income you need to live on in retirement. Cash flow planning helps CRNAs evaluate what you can afford without running out of money or depleting your savings too quickly. Another benefit to completing this exercise in anticipation of retirement is that you may find expenses you can eliminate or modify to lighten your estimated need.
4) Don’t Stop Making Contributions:
Even if you are a CRNA with a significant amount of retirement savings, don’t stop contributing to your retirement and investment accounts until you actually stop receiving a paycheck – even during a market downturn. Your contributions will help to work against any loss incurred by market downturn. Even if returns aren’t positive at the moment, your contributions are essential to keeping your financial plan as even-keeled as possible.
Additionally, when you invest in assets at a depressed price (as they currently are as a result of COVID-19), your contribution dollars can actually go further. Essentially, buying in a down market is like getting your favorite assets on sale - you can purchase more assets with the same amount of capital.
5) Consider Contributing MORE:
It may seem counter-intuitive to invest more of your money at such a volatile time and so close to retirement, but doing so could greatly improve your net worth on the upswing. As mentioned above, buying assets at a lower price means you can acquire more of the asset than you normally would with “x” amount of capital. If you can afford to invest more and tolerate some ups and downs the market might make in the meantime, you could potentially earn more of the expected recovery. Of course, we only suggest this as a possibility if you have sufficient liquidity and resources to live off for the foreseeable future. Not everyone can handle (or should try to handle) this type of move. But for some CRNAs, this strategy could prove to be quite fruitful.
Stay Focused on the Target
As a CRNA nearing retirement, it’s only natural to begin having doubts about your retirement readiness. You may start wondering if you have saved enough or if a sudden market correction could significantly alter your plans. At CRNA Financial Planning®, we specialize in helping CRNAs plan for and navigate their retirement journey. From the early stages of accumulation, through the pre-retirement years, and long into retirement, our CERTIFIED FINANCIAL PLANNER™ professionals are here to help keep you on track in any market environment.
Ready to check your retirement readiness?
We offer second opinions on your current financial plan as well as comprehensive wealth management services to successful CRNAs across the nation. Call our office at 855.304.3748 or email firstname.lastname@example.org. Or, schedule a free 15-minute introductory phone call now.
Investment Advice offered through Private Advisor Group, LLC, a Registered Investment Advisor.