Retirees will be hit hardest by COVID-19 pandemic, says expert

Life will never be the same, but decisions retirees make now can still help.

older woman stressed about her future

The health, lifestyle and financial situations of older Australians will be hit hardest by COVID-19 fallout, says senior investment specialist Dr Roger Cohen.

Older investors are most at risk as they try to navigate volatile markets.

In order to understand the impact of COVID-19 on retirees, says Dr Cohen, it is critical to monitor human behaviour during the pandemic, and how it will be influenced after the crisis has passed.

“If we assume that COVID-19 will at some time be eradicated entirely, or completely controlled (including effective testing and a vaccine), we will not revert to the same state as we were in pre-COVID-19. We’ll be changed as a society in many respects,” said Dr Cohen in a Nest Egg report.

“Some of these changes – both positive and negative – will be logical and rational, while others will be exactly the opposite.”

Dr Cohen used the cruise industry as a metaphor for his hypothesis.

“Once the pandemic has passed (and future occurrences can be controlled), the risk of taking a cruise is no higher than it was before COVID-19. However, people will be much more reluctant to be on a cruise ship as their perception and awareness of risk is now raised,” he said.

“This means that cruises for many retirees (and others) will be replaced by local travel, travel to specific destinations, or no travel at all.”

Dr Cohen said that those in retirement and even those planning retirement should stay invested in the market despite current volatility but noted that riding out market swings will be testing.

“This is where rational and irrational behaviours can have a significant impact on the financial wellbeing of retirees,” he said.

“The decisions they make during this unprecedented event could make or break their retirement plans. It may leave some effectively ‘retirement trapped’ by their irrational decision making.”

The pandemic has already had dire effects on most super balances, which will only be exacerbated if retirees draw down on these assets, he added, and those who sell out of the market now will not benefit from the recovery that will eventually take place.

“A panic reaction will cause many to sell at the bottom or on a bounce. They will not benefit from a subsequent recovery,” Dr Cohen told selfmanagedsuper.

“Those with externally managed assets need to trust their investment manager or financial adviser, and not look at the performance day to day. For self-directed investors, behaviour and risk appetite will be tested. The wild swings in equity markets over March have resulted in many people selling at a bottom and making difficult decisions in an unprecedented environment.

“Many retirees will see their currently reduced super balances. I would suggest they look back at the GFC and ask themselves the question, ‘What should I have done then?’

“If the answer is along the lines of, ‘If only I had remained invested or had made different choices’, take heed. We will come out the other side of this. Base your decisions on that, rather than on the moment.”

How are you being affected by the pandemic? Do you expect to fully or at least somewhat recover from the fallout?

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    COMMENTS

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    Gra
    11th May 2020
    11:18am
    The only ones to come out of this Pandemic worse off will be those who panicked and sold up their shares or drew down on their super. Those who opted to leave things be and ride it out will be laughing.
    Anonymous
    11th May 2020
    11:35am
    If you had some cash you would be now picking up bargains and laughing even more in the future.
    Tanker
    11th May 2020
    1:03pm
    The big word there was "IF". Most retirees do not have much in the way of spare cash hanging around of the knowledge to venture into picking "bargains".
    I guess one to influenced by their own personal circumstances separating them from knowing how others live.
    Tanker
    11th May 2020
    1:03pm
    The big word there was "IF". Most retirees do not have much in the way of spare cash hanging around of the knowledge to venture into picking "bargains".
    I guess one to influenced by their own personal circumstances separating them from knowing how others live.
    Herbie49
    11th May 2020
    11:26am
    Smiling maybe, laughing no.
    Priscilla
    11th May 2020
    11:33am
    Definitely not laughing. If you look at your super you will see how much your super has lost already and we still have a long way to go. Definitely not laughing or even smiling as there is no way I can contribute to make up the shortfall.
    Anonymous
    11th May 2020
    11:36am
    So your super is back where it was 12 months ago which is what you should expect form time to time.
    Anonymous
    11th May 2020
    11:45am
    If it is in shares Priscilla just wait and it will come back in time it always does
    Tanker
    11th May 2020
    1:05pm
    Super hasn't "lost" anything. It is only when cashing any of it out that a loss is made. Patience is all that is required.
    Tanker
    11th May 2020
    1:05pm
    Super hasn't "lost" anything. It is only when cashing any of it out that a loss is made. Patience is all that is required.
    Youngagain
    11th May 2020
    1:54pm
    The problem for retirees is that they may HAVE to cash out in order to have money to live on. Those who do not qualify for a pension but have limited assets simply don't have a choice. They most likely couldn't afford to hold a lot of cash with interest rates so low, and therefore they simply don't have the option to hold on to their assets and wait for a recovery.
    Anonymous
    11th May 2020
    3:27pm
    Why aren't retirees holding at least 3 years expenses in cash? To me that would be the best thing to do so you didn't seel at fire sale prices.
    Youngagain
    12th May 2020
    8:29am
    Retiring Well, you are living in la la land if you think it's even remotely possible for the average retiree to hold 3 years' expenses in cash. Of course it's the 'best' thing to do, but in today's low interest environment, with a punishing means test that forces people to live off their meagre savings, it is a pipe dream for most. And even if they do have enough for 3 years' average expenses, it only takes a minor crisis to demolish the best laid plans.
    older&wiser
    11th May 2020
    11:38am
    Many pensioners have seen their super take a hit. If not working, they have no way of contributing to their super - which I feel is a bit discriminatory.
    One thing I would like to be looked at - is to allow pensioners who are under the income/asset limit, to be able to add to their super if they want to. For example, I only have (now) $80,000 in super, can no longer work, no other assets/income of any value, but am very frugal and like doing up things to sell. I have to take out 5% of my super - now reduced to 2.5% for the current and net financial year.
    I would like to be able to add to my super - I just wish we were able to.
    Anonymous
    11th May 2020
    11:47am
    Just invest the money in your own name instead as you will do better than super as you will have no fees.
    Youngagain
    12th May 2020
    8:33am
    Retiring Well, not everyone has the skill to manage investments personally, and paying an adviser may be out of the question if one doesn't have a very large amount to invest. Given how little older&wiser claims to have in super, and the lack of any other assets, I am guessing this is someone who just worked for wages all their life and never even dreamed of having money to invest, let alone learned the mechanisms. Our generation grew up in a world where bank interest was healthy and a huge portion of the population simply never thought beyond putting savings in the bank - never needed to. And old age is not the time to start learning - especially if you have limited assets and can't afford to make a few mistakes along the way. The assumption that everyone should be able to manage a personal investment portfolio is totally unrealistic.
    Chef
    11th May 2020
    11:43am
    Life is and always will be based on choices made by us.
    By not reviewing our choices many will be left behind. By example I sold out of major 4 banks back in January 2020 and bought into growth rather than income stocks. As result I am already laughing with super balance at all time high. Loving retirement.
    Farside
    11th May 2020
    4:40pm
    chef, you chose wisely
    Horace Cope
    11th May 2020
    11:46am
    "How are you being affected by the pandemic? Do you expect to fully or at least somewhat recover from the fallout?"

    We have lost about 2.3% of our super but that loss also includes funds withdrawn under the compulsory 5% so we have fared quite well with our super fund. We have also taken advantage of the government allowing us to halve the compulsory drawdown and we feel that this will help to recover quicker. During the GFC, we lost some super but we accepted the advice of our super fund and maintained the choice of investment which meant that the recovery was quicker than if we had moved to a safer choice. We expect that a healthy recovery will ensue.
    Ok
    11th May 2020
    11:50am
    I was recently talking to some business people in China. It seems many orders for shoes and clothing from other countries were cancelled. Did we see the bottom of the share market or will a "second wave" of bad economic news hit our shores? A "second wave" of bad economic news may be created by a serious downturn of global trade.
    Greg
    11th May 2020
    3:23pm
    Have a look at past market downturns like this one, there is usually a 50% run up than a more major fall going below the recent lows. The US market is currently around that 50% mark now, be very very careful.
    BillW41
    11th May 2020
    12:54pm
    Why are these pessimists saying "things will never be the same as before", "we'll be changed as a society", etc.? Why the hell can't we carry on as when previous epidemics occurred? I'm prepared to return to normal and forget all this rubbish and hope most sensible people feel the same, like the fellow I saw in Aldi the other day wearing a SAS cap badge who muttered "paranoia" as we judged the 1.5m between us.
    JohnS
    11th May 2020
    1:52pm
    I wonder if you would feel differently if you had a serious lung disease, diabetes and where 73 years old and had been told by your lung specialist that if you got covid you had 4 days to live?
    Eddy
    11th May 2020
    2:05pm
    Things may never be the same again and society will most probably be changed post Covid-19. If things do not change then we will be flying in the face of history. Change, particularly after a disaster, is inevitable, embrace it as we cannot fight it.
    Ask yourself, is a post-Covid-19 changes going to be such a bad thing, every catastrophe has generated some change in society. I am sure that the Australia pre-WW2 was changed to the Australia post-WW2. We did not stay the same. For instance the post WW2 wave of migration from mainland Europe, as distinct from migration almost exclusively from Britain. Migration, that included many of our former enemies, changed Australia forever, particularly in our food choices. My mother once told me they did not like pasta or yoghurt as it was not the sort of food she 'normally' had, and she only cooked rice as a pudding. Today pasta, rice and yoghurt are a normal part of our food choices..The wave of migration post-Vietnam war when boatloads of refugees from SE Asia were welcomed changed the mix of people we saw on our streets. I remember that one day years ago when I saw a group of Asian people at a picnic playing cricket,they were assimilating into our way of life. The changes after the GFC in 2008 may not have been as dramatic, but there were changes. So it will be after Covid-19.
    Maggie
    11th May 2020
    2:26pm
    I do so wish you were right. Over 277000 people have died already and America is in danger of losing thousands more. In the under developed world God knows how many people have died and more to go yet.
    For every dead person there are family in mourning, people with a breadwinner knocked out and children orphaned.
    At the moment, with the exception of NZ we are the luckiest country in the world. However, the virus has taken a very heavy toll on us financially and will continue to do so. Tourism will take a long time to recover.
    Our airlines are badly hit and will also take time.
    Sadly I could go on.
    The fact is that we will have many thousands unemployed. Our children's education has been disrupted and they will need time to catch up. Our farmers have ploughed crops into the ground, and our dollar is now so weak, it will be hard for them to make a profit.
    If you don't know anyone who has lost a job, or a grandchild who is battling; if you are well-off and can continue to live in a little bubble pretending nothing has changed, good luck to you.
    Anonymous
    11th May 2020
    3:30pm
    I can't wait to get everything back to normal so that things are no so much of a hassle.
    inextratime
    11th May 2020
    1:43pm
    Not if you converted to cash as I did right at the start. Saved thousands ! Will get back into the market when there is some signs of a recovery. So what financial advice company do you represent ? I'll stay away.
    Karl Marx
    11th May 2020
    2:37pm
    I did the same. Will shortly look at doing 50% cash & 50% balanced & see how that goes for a couple of months.
    Anonymous
    11th May 2020
    3:33pm
    It must of not had much invest or much profit as CGT would cut deeply into any gains you have made. I simply can't afford to sell some of my investments and buy them back again.

    I was about 50% cash and 50% invested and from where I'm looking it's looks great.
    BigAl
    11th May 2020
    4:12pm
    Don't believe the nonsense from advisers that you can't time the market and the buy and hold forever nonsense. I got out before the crash using selected indicators. A 50% drop requires a 100% return to just get back to where you were. May take you 3-4 years. Some of the market indices are now moving up nicely. Have gradually start investing again.
    johnp
    11th May 2020
    5:37pm
    Hi BigAl
    would I be right where you said as follows ??
    "got out before the crash using selected indicators"
    By use of charting technical analysis such as moving averages etc. ??
    I was thinking application of say 20 and 45 day moving averages work fairly well ??
    David
    11th May 2020
    3:13pm
    Some, not all.
    Retirees with defined benefit superannuation funds are not impacted by share market fluctuations.
    KSS
    11th May 2020
    6:26pm
    Nor were those on a aged pension!
    MacI
    11th May 2020
    5:19pm
    A friend posted the following the other day. Gives me a proper perspective of our current circumstances.

    “Imagine you were born in 1900. On your 14th birthday, World War I starts, and ends on your 18th birthday. 22 million people perish in that war.
    Later in the year, a Spanish Flu epidemic hits the planet and runs until your 20th birthday. 50 million people die from it in those two years. Yes, 50 million.
    On your 29th birthday, the Great Depression begins. Unemployment hits 25%, the World GDP drops 27%.
    That runs until you are 33. The country nearly collapses along with the world economy.
    When you turn 39, World War II starts. You aren’t even over the hill yet. And don’t try to catch your breath. On your 41st birthday, the United States is fully pulled into WWII. Between your 39th and 45th birthday, 75 million people perish in the war.
    At 50, the Korean War starts. 5 million perish.
    At 55 the Vietnam War begins and doesn’t end for 20 years. 4 million people perish in that conflict.
    On your 62nd birthday you have the Cuban Missile Crisis, a tipping point in the Cold War. Life on our planet, as we know it, should have ended. Great leaders prevented that from happening.
    When you turn 75, the Vietnam War finally ends.
    Think of everyone on the planet born in 1900. How do you survive all of that? When you were a kid in 1985 and didn’t think your 85 year old grandparent understood how hard school was. And how mean that kid in your class was. Yet they survived through everything listed above. Perspective is an amazing art, refined as time goes on, and enlightening like you wouldn’t believe. Let’s try and keep things in perspective."
    leek
    11th May 2020
    6:18pm
    My grandmother was born in 1908, and died 2014, 4 weeks before her 106th birthday.
    So she lived through everything you have mentioned above. not long before she died(in her sleep) she told me about the Spanish Flu. I knew nothing about it until then.

    Her mother died when she was a child(I can't remember from what) and her father moved an 'aunty' in. Most of her child hood memories was about how harsh the "aunty" was, and not seeing her father a lot, and moving homes.

    She had 2 boys(my father the oldest). her youngest died from "whooping" cough when he was 18 months old. My father made sure my brother and I got every immunisation when they came out, and installed the importance of immunisation into me.

    I grew up with the stories of food ration coupons etc. from my grandmother and parents.

    We really have gotten off lightly with this virus and the problems it has and is causing. The situation could be so so so so much worse.
    BillW41
    11th May 2020
    6:48pm
    I'm 79, JohnS, and have a few fairly serious health problems. I lost $50k during the GFC. A $4k drop this time doesn't seem so bad.
    Steff
    11th May 2020
    7:05pm
    Another Academic Elite telling us how we are going to live the rest of our lives.Why are these people allowed to decide public policy.
    Marjie
    17th Jun 2020
    12:21pm
    I believe I read an article on the halving of minimum amount being reduced with regard to income stream pension a few days ago. I was quite taken aback by this BUT EVEN MORESO when a letter arrived from my fund informing me that my fortnightly pension would be halved to 2.5% (instead of 5%). Whilst I understand the reasoning behind this move I think it should be an "opt in" decision by the client, not a decision made by the fund to automatically reduce pension amounts. I have been online and amended my withdrawal to 4% (as this is OK for me) but I know that my partner definitely CANNOT manage on half of his monthly income stream. I feel this is a big failing on the part of funds.


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