Q&A: What you should think about when planning for retirement during COVID-19

COVID-19 has brought a lot of uncertainty to the job sector and the economy and for those thinking about retiring soon, it may have them evaluating what they want and need from retirement.

CBC Kitchener-Waterloo spoke with James Thompson, a professor of finance at the University of Waterloo, to get his thoughts on what people should think about when planning for their retirement during the pandemic.

Thompson will be giving a virtual talk next Wednesday.

This interview has been edited for length and clarity. 

CBC Kitchener-Waterloo: What is the outlook for those thinking about retiring this year or in the coming years?

James Thompson: It all really depends on what your saving situation is. If you are relying on a defined benefit pension plan and your organization has funded it well, then it doesn't make a difference.

But defined benefit pension plans are becoming more and more scarce, so the majority of people are in a situation where they have a portfolio, where an individual is dependent on what's in their portfolio.

It's more about where you save and how much. Everyone is going to have a different amount saved and it depends on how much you want during retirement. 

CBC K-W: How has COVID-19 impacted those thinking about retiring?

James Thompson: I think that it has forced people to evaluate what they want in retirement if they want to retire now.

The only way to do it may be to reduce the amount you spend in the first few years of retirement because you don't want to draw down on your stocks, which have fallen by a bunch. 

We have lots of research that says that stocks tend to do this every once in a while and selling stocks when they fall is not a good thing.

What you want to do is try to delay selling those undervalued stocks. If you can reduce the amount that you use at the beginning of your retirement — if you're doing it right now — you may find that by the time you ramp up spending, stocks may have recovered by then.

CBC K-W: A question some may be asking is: "Am I going to have to work longer?"

James Thompson: This happened in the credit crisis (2008) when we saw big drops in stock prices, and yes, there are going to be a group of people who may have to work longer. That's a possibility, but it's not a definite.

You can retire on time, you just need to plan for it ... what you can tolerate while reducing how much you spend in retirement until things recover. That's your most important factor.

CBC Kitchener-Waterloo: Should people be putting money into their RRSPs?

James Thompson: The biggest recommendation out there, and what historical data has shown us is, it's not a good time to panic and sell.

RRSPs are meant for long-term savings and in these big market dips, if we all sell off our stocks and ship it all into debt, we end up missing out on quite a bit when stocks recover.

The recommendation is to add more stocks if at all possible, which for most people is tough right now. Most people don't have a lot of disposable income right now to put into the market. 

There are other areas of savings. We have the Canada Pension Plan and Old Age Security, which shouldn't be too affected by COVID-19.