The health, lifestyle and financial situations of older Australians will be hit hardest by COVID-19 fallout, says senior investment specialist Dr Roger Cohen.
Older investors are most at risk as they try to navigate volatile markets.
In order to understand the impact of COVID-19 on retirees, says Dr Cohen, it is critical to monitor human behaviour during the pandemic, and how it will be influenced after the crisis has passed.
“If we assume that COVID-19 will at some time be eradicated entirely, or completely controlled (including effective testing and a vaccine), we will not revert to the same state as we were in pre-COVID-19. We’ll be changed as a society in many respects,” said Dr Cohen in a Nest Egg report.
“Some of these changes – both positive and negative – will be logical and rational, while others will be exactly the opposite.”
Dr Cohen used the cruise industry as a metaphor for his hypothesis.
“Once the pandemic has passed (and future occurrences can be controlled), the risk of taking a cruise is no higher than it was before COVID-19. However, people will be much more reluctant to be on a cruise ship as their perception and awareness of risk is now raised,” he said.
“This means that cruises for many retirees (and others) will be replaced by local travel, travel to specific destinations, or no travel at all.”
Dr Cohen said that those in retirement and even those planning retirement should stay invested in the market despite current volatility but noted that riding out market swings will be testing.
“This is where rational and irrational behaviours can have a significant impact on the financial wellbeing of retirees,” he said.
“The decisions they make during this unprecedented event could make or break their retirement plans. It may leave some effectively ‘retirement trapped’ by their irrational decision making.”
The pandemic has already had dire effects on most super balances, which will only be exacerbated if retirees draw down on these assets, he added, and those who sell out of the market now will not benefit from the recovery that will eventually take place.
“A panic reaction will cause many to sell at the bottom or on a bounce. They will not benefit from a subsequent recovery,” Dr Cohen told selfmanagedsuper.
“Those with externally managed assets need to trust their investment manager or financial adviser, and not look at the performance day to day. For self-directed investors, behaviour and risk appetite will be tested. The wild swings in equity markets over March have resulted in many people selling at a bottom and making difficult decisions in an unprecedented environment.
“Many retirees will see their currently reduced super balances. I would suggest they look back at the GFC and ask themselves the question, ‘What should I have done then?’
“If the answer is along the lines of, ‘If only I had remained invested or had made different choices’, take heed. We will come out the other side of this. Base your decisions on that, rather than on the moment.”
How are you being affected by the pandemic? Do you expect to fully or at least somewhat recover from the fallout?
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