How Pre-Retirees Can Manage Cash Savings During a Public Health Crisis
17 November 2020
During a public health crisis like the one we’ve faced in 2020, individuals may feel stuck between a rock and a hard place; we are frequently forced to decide between two difficult options.
The term originates from economic woes. It was commonly used during the great depression and possibly took root before that, when miners would have to decide between the difficult conditions of mining a rock or suffer the hard place of poverty.1
The concept has reverberated into many aspects of life. One difficult choice that has become especially concerning for those approaching retirement is what to do with cash savings — how much should be saved now for emergencies, and what should be done with the excess.
As In Good Company retirement workshops discuss, holding too much cash — more than is necessary for an emergency fund — can lead to inflation risk. That inflation could decay the value of our cash dollars.
Alternatively, if we invest our cash, we risk entering volatile markets during turbulent times, possibly sustaining a large loss that could affect retirement funding. In Good Company financial professionals often focus on the time horizon of a person’s goals as they look to mitigate this risk, which is an important initial assessment. But what can you do if retirement is fast approaching or if you have a very low-risk tolerance?
Pre-retirees may be left scratching their head with this predicament — stuck choosing between inflation or stock volatility risks. On the plus side, it may be a great time to learn more about financial solutions between the rock and the hard place. That’s why our virtual workshops cover various financial tools that can help individuals keep up with inflation while potentially mitigating market risks.
Here are several topics worth exploring for managing cash during uncertain times:
Research competitive rates for CDs and savings accounts. Some banks are notoriously quiet when not staying competitive, hoping their customers won’t notice. You can try leveraging resources like bankrate.com or maxmyinterest.com to ensure you are getting the most for your money. These vehicles can be tax inefficient but are a convenient way to mitigate inflation decay on your cash.
A clever app or reference can make a big difference when choosing where we put our money. In Good Company workshops allow attendees to engage with interactive workbooks highlighting helpful resources like these — while also offering the space to discuss top-of-mind questions with a knowledgeable professional.
Annuities are more of a niche product; there are many different types for various situations. Essentially, they can offer guarantees. For example, a fixed annuity may be able to guarantee you an interest rate competitive with inflation, structured in a tax-advantaged way. Annuities may be most appealing when interest rates are low or there is much volatility in the markets (like during a major health crisis). In our retirement and investing workshops, financial professionals recount case studies where a person may use annuities in order to make this abstract idea more tangible.
Treasury-inflation protected securities bonds are issued by the government and their values are indexed with inflation — meaning as inflation goes up, so does your investment. TIPS are great for those who do not have a high-risk tolerance at the moment but recognize the need to avoid inflation decay on their cash. There are some peculiarities to TIPS so be sure to research them thoroughly before investing.
While a low-interest-rate environment might be nice for those trying to buy a home or refinance a mortgage, it can create obstacles for pre-retirees looking for safe yields on their cash. Plus, the recent health crisis has witnessed much stock market uncertainty paired with an unusual inflation environment. While items we aren’t buying as often (perhaps designer suits or plane tickets) may have dropped in price, many necessary commodities (like groceries and pajamas) have surged in cost.2 Our world is constantly changing, and financial plans often have to adjust along with it.
This is why innovative education, paired with professional knowledge, can help provide financial confidence during stages of personal growth or times of societal change. In Good Company workshops bring an interactive approach to employees’ pre-retirement strategies and more. If you’re interested in sharing these learning opportunities with your workplace, our team would love to help.
1Martin, Gary. “'Between a Rock and A Hard Place' — The Meaning and Origin of This Phrase.” The Phrase Finder, Oct. 28, 2020, https://www.phrases.org.uk/meanings/between-a-rock-and-a-hard-place.html
2Mackintosh, James. “Inflation Is Already Here—For the Stuff You Actually Want to Buy.” The Wall Street Journal, Sept. 26, 2020, https://www.wsj.com/articles/inflation-is-already-herefor-the-stuff-you-actually-want-to-buy-11601112630