021: COVID-19 and What It Means for Your Retirement
Apr 26, 2019
After an 11 year bull run, the crisis caused by the COVID-19 has proven to be the real deal from both a health and economic perspective. After over a month of binge watching our favorite TV shows and reading and watching the news, everyone is concerned.
There is a lot of weight on our shoulders right now as Americans, and as we oversee financial plans for people transitioning into retirement at this moment, it’s go time. You need a plan to keep you safe, provide you with income, and grow on your terms, and we’re here to help.
In today’s podcast, we discuss how this pandemic served as a triggering event to cause a major recession, how not to accidentally become an emotional investor, and what you can do to make sure your financial plan is meeting your unique needs as you prepare for retirement at this tumultuous time.
Here are just a handful of the things that we'll discuss:
- Why it’s so easy to fall prey to the traps of emotional investing – and how to take emotion out of your financial decisions right now.
- The factors responsible for market volatility – and why the pandemic was a triggering event that ended a long bull run and drastically affected an overpriced market.
- How to deal with the many unknowns, politically and economically, we’re facing on a daily basis.
- What you can do to create a plan focused on cash flow and sustainable growth in times of economic downturns.
“The markets don’t like bad news, but they like uncertainty even less.” – Ed Siddell
LeAnne: It's The Retirement Trainer with Ed Siddell, a podcast about helping you find ways to become financially fit for your future, no matter what kind of shape you're in now. I'm LeAnne Siddell. On today's show we are going to discuss the COVID-19 pandemic and the impact on the country and more specifically, your retirement. Fortunately, you do not need to panic. Just need a little guidance in shaping up. Ed Siddell, The Retirement Trainer, is here to help us do just that. Hi, Ed.
Ed: Hey LeAnne, what's going on?
LeAnne: We've got a lot to talk about in a very short period of time.
Ed: We do.
LeAnne: We're talking about COVID-19 and the impact on our country, on the many retirement accounts out there. I just quickly wanted you to give a synopsis on what's happened and what your thoughts are on it.
Ed: Yeah, absolutely. For full disclosure for everybody out there, LeAnne is— obviously, we have the same last name— so she is my wife and life partner as well as my business partner. That's going to make a little bit more sense when I say this because COVID-19, it's the real deal not just from a health but from an economic perspective. It’s definitely impacted our house as well. You know it's bad when you're homebound and your kids are tired of playing the Xbox, right? These are serious times. We've gone through, what, a series of the Big Bang Theory, LeAnne, and Friends and Seinfeld and a whole host of other things.
LeAnne: Binge watching like crazy, yes.
Ed: Do you remember when we were at your parents' house a couple of weeks ago? Full disclosure, it was social distancing. There were at one end of the patio, we were at the other. LeAnne's dad asked me, he said, “Ed, how are you sleeping at night?” [00:02:00] I said, “You know what, Frank, believe it or not, I'm sleeping like a baby. I wake up every couple of hours crying and then I go right back to sleep.” Yeah, he laughed too. Bad joke, I know.
In all seriousness, we're sleeping pretty good, aren't we, but there's times where I do wake up with concerns just like everyone else there. Everyone's got a lot of weight on their shoulders. For us and EGSI, we're overseeing a lot of money for a lot of people. We’re overseeing a lot of financial plans for people who have transitioned into retirement or getting ready to. This is really ‘go’ time. I really believe for us these are probably some of the most important times that we can be helping people to make better decisions by taking emotion out of their decision-making process. Right now the big emotion that everybody has is fear.
LeAnne: Okay, that sounds really easy. How do you take the emotion out of the decisions, especially right now?
Ed: Great question. Growing up, you know my dad, retired military guy, Navy enlisted guy. He had all these sayings that used to drive me crazy, and I'm driving our boys crazy with the same sayings, aren't I?
LeAnne: Yes, you are.
Ed: Yeah. One of the things he used to say, and I say it all the time, and it pertains to what we're going through right now. He would say, “Ed, you cannot control what goes on around you. What you can control is how you act, react and how you deal with it and knowing what the next step is.” My dad was in the military. Everyone who serves, first of all, thank you for your service. You guys know this, right? In the military there's a plan for everything, a process, and that process has to be systematized. That's how the military functions, and that's kind of how my dad functioned the whole time growing up and even to this day. [00:04:00]. He's going to be 86 this year.
The reason I say it is he would say all the time, “Best laid plans.” When things would happen that would go crazy and go wrong growing up, he'd say, “Ed, best laid plans.” What he meant was even when you have a plan, bad things happen as they sometimes do. What that plan allows you to do is know what that next step is, so that that way you're taking all the emotion out of it. You can't control what goes on. People want to control what's going on in their environment— and that's our nature— and you just can't. People feel right now there's no control. They're feeling powerless, and for good reason. That's why having a plan in place to help take that stress and strain off is so important. There's a lot of families affected with what's going on, again, from a health and economic perspective. Just know that we're praying for all those families out there. We're praying for all of you. Things are going to get better, without a doubt. Even though things have started to turn a little bit, there's still an awful lot of volatility going on out there.
LeAnne: That's something that I want to focus on. What's causing the volatility?
Ed: There's four factors. Right now when you think about it, obviously, the markets they do not like bad news but they like uncertainty even less. There's an awful lot of uncertainty, a lot of unknown variables. If you turn on the TV it's horrible. It's depressing.
LeAnne: Oh my gosh, can't even do it.
Ed: Right? I say all the time if it bleeds it leads. They want to find the most outlandish stories, and they're depressing. They're running around saying the sky is falling. I do not subscribe to that. Things are challenging, without a doubt, but they're getting better. [00:06:00] Now, I'm not saying that they're in a full recovery yet either. Again, there's just too many unknown variables and intangibles. With the stimulus that the government’s… President Trump just signed 3.5. Stimulus number 4 is already being reviewed right now. Do you remember back in March when our boys were told that they weren't going back to school? Do you remember that? We were watching the news and…
LeAnne: I thought it was far-fetched. I thought there's no way they can be making decisions about the end of the schoolyear in March.
Ed: Yeah, it was crazy. Was it Falchi or Fauci? I can't remember the name of the doctor. There was a couple of them on there too. What stuck in my head was when they said, “Look, those who are the strongest are going to come out of this okay. Those who have been infected and afflicted with Covid-19 that have underlying health issues and concerns, they're going to struggle.”
If you relate that to our economy, our economy coming into this was really strong. For the first time in decades, manufacturing was coming back to the U.S., taxes were at historical lows, unemployment at historical lows. We were in growth mode and it looked like there was no end in sight. This is the first variable. I've been talking about this on the podcast, in the articles and the classes and everything, is that the market has been overpriced. It's been very, very expensive.
LeAnne: Yeah, you really have. You've been talking about it a lot over the last two years especially.
Ed: Oh, absolutely. We just hit the 11 year anniversary of the bull market and so we were due for a downturn. Then if you look back since the election, you had the ongoing Russia probe, you had the impeachment, the trade wars and not just with China, the issues with NoKo or, excuse me, North Korea, the issues in the Middle East and all these things. [00:08:00] It just seemed like one of those were going to be the triggering event but the markets remained resilient. We didn't know what that triggering event was going to be until the second variable, which was the pandemic.
We get hit with this and, like I said before, it's the real deal. Now everyone's homebound. Social distancing is not just a catchphrase, it's become a way of life. The triggering event was not an institutional blow-up like it was in 2008. It was a health event. The country shut down not because everybody wanted to shut down, but because the government told us to. Businesses are closed and some are failing. You've got restaurants that are closed. Some are staying open, thank goodness, so we're not cooking three meals a day. Take-out and carry-out and all those kinds of things. LeAnne, you're going to shoot me for this, but it all blew up in our house when you couldn't get your hair done.
LeAnne: It's not just me. I do think a lot of people are learning how to do their hair. For those of us that don't naturally have our hair color, it's a little bit stressful to watch those roots come in.
Ed: Well, and our boys too. Now for me, I've been cutting my own hair for 12 years because I don't have a whole lot left to cut. That's the reality. Things that we took for granted, it's now a luxury. Everyone's working from home. You and I are lucky; we're the only ones here in the building. Your office is at one end, I'm at the other. The rest of our team’s working from home just like everyone else. Then you have a big part of the population that's furloughed, unfortunately. Then even worse, millions and millions of people that are already unemployed. There's over a million people just in Ohio. A lot of people just didn't have the savings built up to handle a huge economic impact like this because no one knew what to expect. [00:10:00]
The third thing is oil. What does that have to do with fanning the flames of the market volatility? Supply and demand. The supply is up because the demand is low. On top of that, OPEC. What is OPEC designed to do? They go into a war with Russia over oil. OPEC has done this to us twice before, back in the early 2000s and once before that, in which they turned on the spigot and flooded the market with oil. They did this right in the middle of the freefall of our market, right in March. It wasn't by accident, it wasn't by happenstance. They did it on purpose. See, America's been energy independent for the last couple of years. This is OPEC's way as to drive American companies out of business and so we have to become energy independent on them and drive the prices back up. We talk about this all the time. It makes me angry. I don't know about you guys, but yeah, it's… Right?
Now, the last thing, the fourth thing is the political discourse. These elections are in full swing. I'm not just talking about the presidency. I'm talking about Congress, the House and the Senate and the gubernatorial races. There's a lot of discourse out there and you hear me-
LeAnne: It’s just ugly. It doesn't really matter which side you're on. It's just ugly both sides and it leaves a lot of unknowns.
Ed: It really does. I've been saying this for a while, the last couple of years. Look, we're Americans first. Forget about the political affiliation especially now. We're Americans first and we need to come together as a country. The good news is it looks like it's already starting to happen, but there's still a lot of extreme volatility because of all the unknown. [00:12:00] We need to make sure individually that we're all making better decisions by taking all that emotion out of the process.
LeAnne: That is all great information, but let's provide some takeaways to help people make the decisions that they need to make right now.
Ed: Yeah. To help get rid of the emotion when you're making decisions, you’ve got to have a plan. For us, when we're helping people, we break it down. Our philosophy is really simple. It's “safety, income and growth.”
Ed: All right. We had to take a brief intermission there because of a client. Let's go back to that last question and we'll start over and then we'll edit that last part out.
LeAnne: It's all great information, but let's give a couple of takeaways that can help people make better decisions.
Ed: Yeah, absolutely. A big part of what we do as far as helping people is helping them understand it's all about a plan. For us, we always start off with our philosophy of safety, income and growth, which is really the basis for all the plans that we do when we help people. It should be generally for everyone out there but everyone's situation is a little bit different, so let's just talk about it in general terms.
Especially now, the two things that folks really need to pay attention to and focus on is market volatility and understanding the risk that they want versus the risk that they actually have or the risk that their investments tell them that they have. The first question that you should ask yourself, because when we're helping people this is the very first question that we ask is, how much money are you willing to lose? LeAnne, you can see me holding up a zero. [00:14:00] I know no one else can. No one wants to lose any money, right?
LeAnne: Which makes sense.
Ed: Yeah, especially now. We ask that question all the time. Most of the people that were helping, it’s 5%, maybe 10%, maximum 15%. There's a huge difference. I would say 90% to 95% of the people that were helping have a significantly higher risk. It looks closer to something like the market or the S&P. It's really important for people to understand how much money they're willing to lose. Not that everyone's going to high-five anyone, but if you're losing 5% or 10% or whatever that amount is, how much can you lose and still sleep at night, and lose and still be able to maintain the lifestyle that you're used to living? Versus what your investments say that you could lose in a downturn or a bear market or a financial crisis. Most times they're at opposite ends of the spectrum, and so helping people understand that and coming together. That's probably the first thing that you want to ask yourself. Again, how much risk do you want versus what your investments tell you you actually have?
Now, the second thing, and you hear me say this all the time on this show and articles and everything that we teach, retirement's all about cash flow. We really do call it a spending plan because the ultimate goal when you're in retirement is to spend as much as you can each and every year in hitting your goals and not run out of money. Then obviously we'll get into tax strategies and healthcare and estate planning down the road, but right now we're trying to focus on cash flow to help as many people as we can.
Cash flow, that's what's going to give people better confidence as they transition into retirement or are already retired, and especially right now. [00:16:00] Retirement is, if not the biggest, one of the biggest financial decisions that you're ever going to make in life. You go from saying, “All right, I'm working now. I'm getting a paycheck. I can count on that. I'm going to be putting money away into my savings,” to saying, “You know what, I'm going to give it all up. I'm going to give it all up. I'm going to retire. I'm no longer going to get a paycheck. I'm no longer going to put money away for my own savings. Instead, what I'm going to do is I'm going to spend it down.” That's scary by itself.
That's why you have to have a spending plan or a cash flow plan when you retire because it's the income that determines what your lifestyle is going to be like in retirement. The more confidence you can have in your retirement, the more income you can enjoy when you retire. The questions that everyone has, “Are we going to be okay? Are we on the right path? How do we protect ourselves if this continues or happens again?” Those are really two of the biggest things is making sure you understand your risk and you have a cash flow or a spending plan in place.
LeAnne: How can people get help if they want it, Ed?
Ed: I said this early on, we're here to help folks. We're doing this thing right now where we're going to try and help us as many people as we can. We're donating our time, no cost, no obligation. We're giving everybody free phone consultations. I really want to make sure that we can help people. If they have questions, they get their questions answered, mainly “Are we going to be okay?” and “Are we on the right path?”
LeAnne: I'm sure the next question people are saying in the back of their mind is, why are you donating your time?
Ed: That's a great question. [00:18:00] LeAnne, you and I, we've been talking to our boys about this as well as our team here. I say all the time, we're going to look back on this moment whether it's a year from now, 5 years from now, 10 years from now. Everyone's going to remember what they went through and the situation that they were in. It's in times of turmoil when we look back and say, “Who do we become?” Were we a part of the problem or a part of the solution? Part of the solution means, were you serving others? Were you helping others who were in distress? For us, we need to do what we do best, which is help people have a plan and help them to answer the questions that they have and give them more confidence in their retirement. The questions that we just talked about, which is, “Are we going to be okay? Are we on the right path?”
LeAnne: I think everybody that's listening right now is also going to want to know, what do you need to have in order to make that a productive conversation? “What do I need to get to you ahead of time in order for you to be able to help me?”
Ed: You know what? Nothing. Just be on the call. If you have questions, just make sure you have it there. I recommend writing down your questions. Anything that you have, make sure it's in front of you so that you can ask the questions and I can help you as best as possible. Again, we want to do whatever we can to make sure that you have the plan in place, and give you the ability to look out into the future and give you the confidence in saying, “You know what, we're going to be all right. If this happens again, we're protected.” That's really what it's all about.
LeAnne: So that everybody knows, if you have questions, if you want help, you can reach Ed by getting a hold of us through our website at www.egsifinancial.com. [00:20:00] Or you can email us firstname.lastname@example.org or you can give us a call. Our phone number here at the office is (614) 526-4118. Thanks, Ed.
Ed: Hey, thanks, LeAnne.