Recession, sure – but keep saving what you can for retirement, experts say
Only the very oldest of us will remember times less scary than the spring of 2020, with so much illness, so many folks forced to stop working and stay home, and scary markets for investors.
Many of us are naturally more worried about keeping afloat financially than retirement savings.
However, a report in The Motley Fool blog says that this COVID-19 crisis should not be a reason to entirely give up on retirement saving.
“The coronavirus is driving the global economy into a recession. Stock markets are very volatile and it’s hard to tell where they’re headed. While it’s normal to be worried, you should continue to save for your retirement,” the blog advises.
You should continue to try and set aside “a small portion of your income for retirement savings,” notes the blog. One reason why is that if you don’t put money in a Registered Retirement Savings Plan (RRSP) or registered pension plan, “you my not have as much extra money as you expect… as you’ll get a higher tax bill.”
The Motley Fool agrees with the idea of directing some of any precious extra dollars to an emergency fund in this crisis, “in case you get sick or lose your job.”
But, notes the Motley Fool, those who decided to quit saving for retirement during the last big recession more than a decade ago found themselves far behind those who kept saving and who “stayed on course.”
“A study by Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis at the New School for Social Research, showed the negative impact on those who stopped or decreased their contributions during the 2008-2009 recession. People who came out of the markets sold low and bought high. We have to buy low and sell high to make money,” the blog reports.
“After the Great Recession, 64 per cent of high-income workers and 56 per cent of low income workers saw their accumulated retirement savings increase,” the blog adds.
Let’s recap what the blog is telling us, because there are several moving parts here. Some folks stopped saving for retirement during the last recession, and others sold their investments at the bottom of the market.
But those who kept contributing, and who didn’t sell, saw the value of their investments rise after the crisis was over.
It’s been said that every crisis has a beginning, a middle, and an end. It’s very hard to see the end when you’re at the beginning or even in the middle, but it will come eventually. If you can continue saving, even at a reduced rate, and if you can hold off selling your investments, your future you will thank you for remembering that one day, those savings will be your retirement income.
There’s a great little retirement savings trick that can really work well when markets are low. Say you’re contributing $100 per pay to your retirement account, and let’s say it is a balanced fund, such as that offered by the Saskatchewan Pension Plan. If you continue to chip in the same amount while markets are low, you are essentially buying low, which will help grow your savings when better times return.
|Written by Martin Biefer
|Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22|