How the current economy will impact people鈥檚 savings and retirement plans
The economic impact of COVID-19 continues to be a global issue for people and businesses everywhere. Many in our community are wondering how the shutdown of our economy will affect their long-term financial goals.
James Thompson is a 蓝莓视频 professor in the School of Accounting and Finance. On Wednesday, May 27, he joined us for this week鈥檚 Ask our Experts community talk to discuss retirement planning in the time of COVID-19, as well as answer your questions about personal finance.
鈥淚t鈥檚 not a good environment to be saving,鈥� Thompson says. The problem is that many people don鈥檛 have a lot of extra money sitting around because people have lost their jobs or are currently working with their hours cut back. 鈥淚 think it鈥檚 important we understand why we鈥檙e not saving as much 鈥� and convince ourselves it鈥檚 worthwhile.鈥�
Thompson explains that we cannot predict what鈥檚 going to happen with the stock market during these unprecedented times. Although the market seems to be going up today, he believes there鈥檚 nothing to say that the market won鈥檛 go straight back down tomorrow.
鈥淭he time to put your money in a secure place is before the crash. After the crash is not your ideal time,鈥� Thompson says. 鈥淚 would say if you can, this is when you should add to your [savings] ... the key thing is as long as you鈥檙e to hold them long-term.鈥�
Thompson says there are savings options available for working Canadians. He recommends to individuals who are in the position of being able to save money is to have a Tax-Free Savings Account (TFSA). TFSA is a flexible option where it allows people to put their after-tax income into the account and don鈥檛 have to pay any taxes when it鈥檚 time to take the money out.
Thompson adds, 鈥淲ith younger people, TFSA is preferred because you鈥檙e free to take money out when you want and will just have to wait until the next year to put the money back in.鈥�
Many community members of all ages are wondering about their financial stability during these uncertain times, and Thompson offers a few recommendations.
People at the start of their career
Thompson says people should be prepared for the future because the issues of recession have not been solved and will continue to happen. He recommends creating a budget for people to keep track of their cash inflows and outflows at this time.
Along with his advice on using a TFSA, Thompson explains Group Registered Retired Savings Plans are a great option to save for retirement.
鈥淚t gives your employer a chance to contribute,鈥� Thompson says. 鈥淭here are no other investments where you can make money risk free like that.鈥�
Soon to be and current retirees
Thompson explains that it is ideal if current retirees don鈥檛 sell their assets if they have been devalued. He says, 鈥淚f you can hold off 鈥� lower your withdrawal from your income fund.鈥�
鈥淏ut if not, you鈥檙e in the best position to start selling assets that have been depleting the least,鈥� Thompson says. 鈥淵ou can sell assets like your bonds.鈥�
Here are some resources Thompson recommends for learning more about financial planning:
Next week, our 蓝莓视频 expert will be James Danckert, a professor in the Department of Psychology. There鈥檚 a finite amount of binge-watching that people can tolerate. While many of us are at home, what are other things we can do to pass time?
On Wednesday, June 3 at noon, Danckert will share his work about the boredom people experienced during SARS and answer your questions about what to do with your time while you鈥檙e waiting for stay-at-home orders to be lifted.
