The best-laid plans of mice and men often go awry. One of my corporate work responsibilities is helping create long-term strategy. With our virus plan in place now, I’m looking at how we want to reimagine ourselves in a post-virus environment. It’s a great opportunity to pivot, do things we never thought possible, or make our business stronger.
To a degree, I thought this would be a good exercise in my retirement planning too. What changes should I make given our current environment? The challenges I’m facing weren’t there two months ago. What, if anything, needs to be adjusted to make sure I survive, thrive, and can still retire in 5 years?
I suppose I’m feeling much like everyone right now … just trying to regroup, rethink, and determine if I need to pivot. We really don’t know where this economy is headed. We don’t have a handle on the virus. Jobs are being lost at record pace. Major industries are in complete collapse (and so are many states).
Buffett and Munger aren’t trying to be heroes, they are just sitting on their billions ($137B) in cash trying to wait this thing out. Several respected leaders think this economic recovery will likely take several years and things will be never be the same. The US Gov’t is giving out trillions and we wonder if it’s enough. And it’s an election year with a politically divided country. Sounds like I should rethink a few things.
My Potential Risks
I would imagine my challenges look like most others that are dealing with COVID-19 economic impacts. Many parts of our company are in complete shutdown while other parts are considered essential services. Here’s a short list of my potential risks/challenges:
- Job Loss – Expenses have to be cut but how deep will they cut?
- Reduced Bonuses – Less profit might (will?) spell disaster for bonuses
- Frozen Pension – Low rates, bad returns, economic turmoil – Yikes!
- Eliminate Retiree Healthcare – It’s already earned but who knows?
Job Loss (Low Probability)
I may be kidding myself but I really don’t see them letting me go. At least not in the short-term. But for someone 5 years away from retirement, losing my high-paying job would be devastating. The hiring outlook isn’t good, it’s likely I’d be retiring and living a much different retirement than I envisioned. There is no way I’d be able to replace my $245,000 annual income in today’s environment.
If I lost my job today, I suspect they’d give me a good severance … it’s just how my company rolls. They are good to their people, even when they let them go. My 22 years would likely provide me with 1 years of severance. I’d also receive about $25,000 yearly for 5 years based on my Restoration Balance. And I’ve got about $5,200 in stock dividend income coming my way in the next 12 months.
Risk Mitigation – Though I can’t stop a potential job loss, it’s probably not likely. However, I should raise more cash and consider getting more aggressive to pay off my mortgage ($77,000). I could start monetizing the Tastes Like Retirement blog, something I’ve not tried to do. If the virus economic impact lasts for another year or two then it would be critical to have reduced my expenses and make sure I’ve got shelter covered.
Reduced Bonuses (High Probability)
On a yearly basis, I gross about $50,000-$75,000 in annual bonuses. In the past, these had been going to pay my kids college education. With kids out of school, these are now going to buy my taxable stock portfolio. There has never been a year when I haven’t received a bonus. And that includes the financial crisis too, which just happened to be one of our best bonuses (which was a shocker).
These bonuses are critical to building my taxable portfolio. In 5 years, it’s been my hope to grow it to a $425,000 portfolio that generates $15,000 in dividend income. Every year I don’t receive a bonus put’s a financial hit on both the portfolio and dividend income.
Risk Mitigation – It’s very likely that bonuses will be reduced if not completely eliminated for a year or two. Though they’ve always paid a bonus, there is a first time for everything and this may be that time. As stated earlier, it might be a good time to start monetizing this blog. It’s also a good time to reduce debt and expenses.
Frozen Pension (High Probability)
I’ve always said, as long as I have a job and my pension can continue to accrue for another 5 years then our retirement should be just fine. I’ve got 22 service years in the pension but I was hoping for 27. Getting 27 years of service should enable me to take my pension at 62.
As I wrote last year about my Sweet Pension, it’s possible my company could allow us older folks to continue accruing benefit while freezing the younger folks. Let’s face it, receiving an “enhanced 401(k)” isn’t a good trade-off for pension this close to retirement. These last 5 years are critical in the pension formula … probably worth about $15,000-$20,000 per year.
Risk Mitigation – This is out of my control. I’m saving as much as I can and I’ve got a savings rate forecast for the next 5 years (assuming I don’t lose my job). If they freeze the pension then I might have to delay taking it until 65 (versus 62) and/or delay retirement 1-3 years. Much of that depends on what happens to the markets over the next 5 years (and I’m not too optimistic).
Eliminate Retiree Healthcare (Low/Medium Probability)
As a 20+ year employee that could retire now, the company is employee friendly and this would be unlikely since it’s already been earned/awarded. I could see the company eliminate it for future generations but would be surprised if they took it away from me now. It’s just not how they roll but these are different times.
This benefit allows me to keep my current health plan (and cost) until age 65. At 65, I’d receive $5,000 per year for insurance to supplement Medicare. This is a significant benefit in retirement and I hope they allow me to keep it.
Risk Mitigation – This company benefit is a gift, pure and simple. It would be hard to replace. If they took it away then I’d just have to figure out way to make it work. Other than reducing expenses, there’s not a lot of mitigation I can do.
Conclusion
Like everyone, so much is at risk. In the next year or two, I could see my entire retirement plan blown up by the economic impacts of COVID-19. I don’t control any of the outcomes but I do control how I respond. Many of my risks would be devastating, especially the job loss.
My Plan – For the next 12-18 months, I’m going to build up my cash reserve and get more aggressive in paying off my mortgage. I’d like the mortgage eliminated by no later than December 2021. During this time, I’ll reduce my stock purchases unless I see a screaming buy in only the highest of quality companies.
Thanks for reading!
Mr. TLR