How will market volatility impact my retirement plan?

01 June 2022 by National Bank
How will market volatility impact my retirement plan?

With the stock markets being volatile, it’s perfectly normal to be wondering about your savings ahead of retirement. Whether you’re preparing for retirement, already enjoying it, or in the middle of establishing a long-term retirement plan, here’s some sound advice to help you get through this period of instability.

How will market volatility impact my retirement plan? 

Since your money is invested in the marketplace and stocks have been impacted by the effects of the virus, you’ll feel the effects of the current situation on your retirement plan. Predictive calculations (which follow the guidelines of the Institut québécois de planification financière) take into consideration market fluctuations over long periods. 

So even though your investments have fluctuated for several weeks, it’s best you stick with your planned strategy. You’re better off if you keep your investments on the stock market and let your money work for you, as you’ve always done. That way, you’ll be able to enjoy the capital you’ve accumulated when you’re ready to retire. 

How should I react if I’m already retired? 

Make sure you have enough cash to make your planned withdrawals over the next few months. 

If you’re worried, you can defer expenses that aren’t part of your withdrawal strategy. Travel plans and kitchen renovations can be put off until things calm down. This will allow you to alleviate the financial pressure and to keep enough cash to take care of more urgent needs. You can look forward to working on these goals with peace of mind once things are back to normal. 

Your biggest ally is still your advisor or your financial planner. They can help you make informed decisions and take an emotional step back, lest your worries lead to ill-advised actions. 

If, in spite of this, you believe that your retirement savings are in danger, that may be because your portfolio doesn’t match your needs or your risk tolerance. Once again, talk it over with your financial planner or advisor before making any rash decisions. 

If retirement is still in the distant future, but you’re already preparing for it

We can’t say it enough: if you want a nice retirement, you need to prepare when you’re young. If you’re someone who thinks ahead, that means you’ve started making a retirement budget and invested wisely in an RRSP or TFSA. It’s an excellent strategy that will pay off in the long term and allow you to maintain your lifestyle once it’s time to retire. 

The best you can do is continue contributing and watch your capital grow over time. Once again, you have to think about your retirement savings growing over the long term (over years and even decades). In the end, a temporary situation like market volatility will have had only a small impact on the capital you’ve accumulated over 20 or 30 years. 

In other words, stay the course and wait for things to get back to normal! 

Should I review my investments?

“Not necessarily,” reassures Mohamed Wakkak, senior advisor at National Bank. “It varies on a case-by-case basis, especially depending on how prepared you are for retirement. If you still don’t have an investment strategy, or if you’ve invested sporadically, talk it over as soon as you can with your advisor. Tell them about your worries, find solutions together, and figure out how to adjust. If your financial situation hasn’t been shaken up by the current situation, stick with your strategy.” 

Should I delay or hasten my retirement? 

“Again, the answer depends on your personal situation and that way your income has been affected. Usually, when you set up a retirement plan, it isn’t based on the exact day you will retire. It’s calculated over the long term, taking into account market fluctuation,” the expert explains. “Even if your investments have gone down on the stock market, this shouldn’t have any major impact on when you retire.” 

“That being said, if you’ve lost your job and it’s compromising your savings, you could think about delaying your retirement. Similarly, if you’re in your sixties and have stopped working, but your investment strategy is stable, you could retire sooner, especially if you think it might be hard to find a new job given your field. Or maybe you feel like it’s finally time to enjoy life and are looking forward to retiring. In any case, I encourage you to contact your National Bank advisor. They will help you make the right decisions and, if needed, update your retirement plan.” 

Should I assess my level of cash?

“Regardless of the situation, you should always assess how much cash you have,” says Wakkak. “Even if your situation is stable and the economy is getting back to normal, you never know what the future holds. That’s why we always talk about how important it is to have an emergency fund. We recommend saving three to six months’ worth of expenses (rather than income) to deal with the unexpected, such as a loss of employment or an eventual second wave. This is especially important for people who live paycheque to paycheque or who work in high-risk industries. The less leeway you have, the more important it is to have enough cash without compromising your retirement plan.” 

Should I review my budget? 

“You should definitely review your budget,” Wakkak states. “In fact, most people have done this recently, whether in a structured way or not. It’s an opportunity to identify unnecessary expenses, to rethink your financial habits, and to see if there are spending categories from which your money could be diverted. If you don’t have an emergency fund, update your budget and make this a priority. If your financial situation is stable and your income hasn’t been affected, now is the perfect time to increase your investments to prepare for your retirement. 

Should I review my financial plan? 

“Your financial plan doesn’t necessarily have to be reviewed,” tempers the expert. “Your financial plan doesn’t have to change just because the current marketplace is volatile. Plans are projections that take into account several stock market cycles, including both downturns and upswings. If your financial situation has changed in terms of income, when you plan on retiring, or even how much you can save, reviewing your plan may be a good idea. Otherwise, keep the status quo. Finally, even if there’s no change, a simple chat with your advisor could alleviate any doubts about the adequacy of your plan. 

Stay optimistic! 

The local, regional and global situation is changing quickly. Markets have a tendency to stabilize themselves. 

  • The positive effects of stay-at-home measures are a sign of economic recovery. 
  • While markets continue to fluctuate, they’ve essentially levelled out. 
  • Withdrawal plans take into account all fluctuations, including major drops. Therefore, they shouldn’t be affected significantly. 

Because of its widespread and sudden nature, the situation in the last few months could pressure you to make irrational financial decisions that you could regret in a few months. History has shown us time and again that a sharp drop in the stock market is always followed by an upswing. However, if your heart is telling you to act now, the best thing to do is always to speak with your financial planner or advisor.

Would you like to discuss this with us? Contact your National Bank advisor or your wealth advisor at Financial National Bank for more info. Don't have an advisor? Schedule an appointment in just a few minutes.

Schedule an appointment

Legal disclaimer

Any reproduction, in whole or in part, is strictly prohibited without the prior written consent of National Bank of Canada.

The articles and information on this website are protected by the copyright laws in effect in Canada or other countries, as applicable. The copyrights on the articles and information belong to the National Bank of Canada or other persons. Any reproduction, redistribution, electronic communication, including indirectly via a hyperlink, in whole or in part, of these articles and information and any other use thereof that is not explicitly authorized is prohibited without the prior written consent of the copyright owner.

The contents of this website must not be interpreted, considered or used as if it were financial, legal, fiscal, or other advice. National Bank and its partners in contents will not be liable for any damages that you may incur from such use.

This article is provided by National Bank, its subsidiaries and group entities for information purposes only, and creates no legal or contractual obligation for National Bank, its subsidiaries and group entities. The details of this service offering and the conditions herein are subject to change.

The hyperlinks in this article may redirect to external websites not administered by National Bank. The Bank cannot be held liable for the content of external websites or any damages caused by their use.

Views expressed in this article are those of the person being interviewed. They do not necessarily reflect the opinions of National Bank or its subsidiaries. For financial or business advice, please consult your National Bank advisor, financial planner or an industry professional (e.g., accountant, tax specialist or lawyer).

Tags :