As stocks gyrate on coronavirus fears, many investors nearing retirement will need to change their outlook, said Chris Hogan, author of “Everyday Millionaire,” in a conversation with Yahoo Finance.
“Right now, we’re dealing with unprecedented times… but people that are a year out from retiring, they’re going to have to adjust their expectations,” he said.
He said some may be able to move forward and take an early retirement, while others may need to work a part-time job to make the numbers work.
“They’re planning to work another year or two longer, while they allow this market to be able to really correct and really continue to move forward,” he said.
Hogan’s comments come at a time when jobless claims have topped 30 million in a span of six weeks and fears of a recession rocked investors with fear. From it’s recent February 19th high, the S&P has dropped 15.88%.
‘Do not make knee-jerk decisions’
But Hogan advised those who are considering early retirement to step on the brakes first. They should talk to a financial advisor or an expert before making any rushed decisions.
“I’m warning people: Do not make knee-jerk decisions without sitting down and talking to your investment professional, because then you would miss out on that rebound that is going to come,” Hogan said. “And here’s the reality, we all know the market is going to come back.”
This isn’t the first time investors have overcome financial setbacks, he noted. From SARS, 9/11, and the Great Recession, the market always bounced back.
“And so we know it’s going to come back, but it’s these people that are in this retirement phase, or close to it, that are really having to adjust their game plan,” he said.
Avoid tapping into your retirement
Even though the coronavirus relief legislation known as the CARES Act relaxed early withdrawal penalties for certain retirement accounts, investors should refrain from using this option, Hogan said.
“I’m literally trying to help people avoid tapping into their retirement as much as possible,” he said. “The only two reasons I ever give people to tap into that is to avoid a foreclosure or to avoid a bankruptcy.”
He also adds that investors should not get carried away with the removal of the 10% penalty, since they still have to pay the taxes back within a three-year time span starting this year. If they’re able to pay back the full amount they withdrew within three years, they can avoid the taxes, according to the CARES Act.
“And I know what the CARES Act, they removed the penalty, but they didn’t remove the taxes,” if you don’t repay the withdrawal amount, Hogan said. “And they haven’t removed our need to grow money, right? I mean we all know compound growth is how money grows.”