Client Affairs

Retiring Into Uncertainty - Beyond COVID-19

Warren Arnold Patty Park Kenneth Little, July 20, 2020


Anyone nearing retirement, or who is already retired, will be concerned about how they achieve their post-work ambitions when a global pandemic is hammering economies and affecting financial markets. The authors of this article consider approaches people should take.

What does the future hold for those contemplating retirement, or those already in that phase of their lives in an age shaken by the global pandemic? This article by Warren Arnold, Patty Park and Kenneth Little, at Northern Trust Wealth Management, considers the terrain.

The editors are pleased to share this commentary; the usual editorial disclaimers apply. To jump into the conversation, email and

Retirement has always been an important and emotional life transition. It marks the end of a long and significant chapter in your life and the beginning of a new stage filled with both anticipation and uncertainty. That uncertainty is increased if you are retiring in the current tumultuous times. And if the timing of the transition is not entirely of your choosing, the anxiety is likely to be greater. Below are strategies for refining your retirement blueprint in the face of present and future uncertainties.

Review and validate or revise your financial goals for retirement.
Make sure that you are clear about your financial and lifestyle goals for your retirement – identify, quantify, prioritize and put a time frame around your goals. If you have done this before, consider what, if anything, in your life has changed and impacted your goals. Are you considering relocating to a more expensive area to be closer to family? Have you received an unexpected medical diagnosis? Changes such as these can upend your plans. If you haven’t defined your goals and you are nearing retirement, time is of the essence. Clarifying your goals can be difficult but is well worth investing the time and effort. You cannot have confidence in a financial wealth plan if you haven’t determined its purpose. 

Reassess your retirement projections.
You may have been anticipating retirement for years. If retirement is on your horizon, now is the time to sit down and review your retirement projections with your wealth planning team. It is important that you understand the key assumptions that drive the results of the analysis. You do not need to have in-depth knowledge of every number, but you do need sufficient understanding so that you have confidence in the plan and its projected results.

Get real about your spending.
Spending is a key driver in retirement funding success (or lack thereof). This is particularly true during the first five years of retirement. A recent study by the Consumer Financial Protection Bureau revealed that most retirees spend more money in their first five years of retirement than at other times (1). Before you retire, take a close look at your current spending levels and make an informed estimate of your spending in retirement. You may be surprised at the level of your current spending. You may also find that your projected spending in retirement, with more time for travel and recreation, may be higher than you anticipated.

Retirement is often the beginning of the distribution phase of your portfolio. Withdraw too much too soon and you will run the risk of a retiree’s greatest fear – outliving your money. 

Healthcare spending is also a major consideration in retirement – both medical and long-term care. On average, a 65-year-old couple can expect to pay about $285,000 in out of pocket medical expenses.(2). Nationally, the average private room in a nursing home is about $102,000 annually (3). Work with your advisors to understand medical insurance and long-term care costs and funding alternatives. Model scenarios and create a plan for anticipated expenses.

Determine how you will replace your paycheck to fund your annual lifestyle spending.
Understand how your various accounts and cash flows will make up your “paycheck” in retirement. When looking at retirement during times of market volatility, cash flow planning becomes even more important. You may receive multiple streams of income when you retire. Social Security, deferred compensation, a pension, an annuity, non-qualified retirement plan payments, or income from an encore career or board work are several income streams you may receive and need to make sure are working in consort with your portfolio as you build your wealth plan.

Required minimum distributions (RMDs) can play a big part of your retirement cash flow. You have been contributing to retirement accounts (IRA, 401(k), 403(b), 457, etc.) for many years, and now it is time to flip the mental switch to taking distributions. Although RMDs have been waived for 2020, in most cases you must start withdrawing from these accounts at age 72 (rather than age 70½ under previous tax law). There is an IRS formula that you must follow to make sure that you are taking out at least the minimum required amount every year. Generally, the larger the account, the larger the distribution. If you choose, you can start to withdraw from these accounts beginning at age 59½ without penalty. Work with your financial planning team to make sure that you are most effectively managing your RMDs in light of the SECURE Act, CARES Act and IRS guidance. This is an area of wealth planning where income taxes, wealth transfer goals and investment management all intersect.

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