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Retirees should have at least two years worth of assets set aside that are outside of the market to protect them in the event of a downturn.

FluxFactory/iStockPhoto / Getty Images

Watching the economic impact of the COVID-19 pandemic take a bite out of investment portfolios is tough for any investor, but more so for baby boomers expecting to rely on those funds for retirement sooner rather than later.

Baby boomers are the first generation to leave the work force with relatively high exposure to equities as low interest rates make typical retiree investments such as bonds, guaranteed investment certificates (GICs) and savings accounts less attractive. The bull market that took place since the global financial crisis of 2008-09 has also made stocks hard to ignore. But with the onset of the current bear market, some baby boomers may be regretting having a higher mix of equities in their portfolios.

The federal government has stepped in to help seniors by reducing the required minimum withdrawals from their registered retirement income funds by 25 per cent for 2020. (Some experts believe mandatory withdrawals should be eliminated entirely this year given the recent market rout.) Cuts to interest rates have also made borrowing cheaper, which can be good news for retirees who have debt.

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Still, many baby boomer-aged investors are worried their cash flow will be affected by the stock market downturn, with some wondering if they’ll need to go back to work. But financial advisors say most retirees with diversified portfolios that include bonds, cash, GICs and alternative assets outside the stock market can take comfort that they’re set up to withstand the downturn.

“Remember that your portfolio isn’t the [Toronto Stock Exchange]. It’s not the Dow Jones [Industrial Average]. It was created for you and, for the most part, it was created to withstand a dip,” says Jennifer Muench, regional president for British Columbia at BMO Private Wealth. “Most [retirees] have multiple income streams coming from various asset classes. The decline in stock values, on paper, may not impact income significantly in the portfolio in the coming months.”

She urges investors who may be considering selling their stocks to consult an advisor and find out where they stand financially.

“Sometimes, that discussion with an advisor is the best medicine because they may discover they’re in better shape than they thought they were,” Ms. Muench says.

That advice extends to baby boomers considering shoring up cash to help struggling children who may have been laid off or lost business income amid the government-mandated shutdowns put in place to slow the spread of the coronavirus.

“Sit down with an advisor and make sure you know the implications of what you’re doing,” she says. “Are you putting yourself at risk when it’s not necessary? You don’t want to do something – even if it’s for your children or a loved one – that’s not beneficial for all parties or that can seriously impact you later. … It’s important to maintain a long-term perspective.”

Todd Neff, a financial advisor at Edward Jones in Burlington, Ont., is spending a lot of his time these days reassuring clients that their portfolios are designed to withstand a major market downturn.

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“They want to know how much they’re down and if they’re on track to reach their goals,” he says. “Some of them are even asking, ‘Is time to buy?’ ”

Generally speaking, he says retirees should have at least two years worth of assets set aside that are outside of the market, such as GICs or cash in high-interest savings accounts, to protect them in the event of a downturn. That amount will range depending on the person’s income streams, risk tolerance, lifestyle and financial goals.

And while there are tax strategies for investors willing to take a loss on equities, Mr. Neff discourages most investors from selling stocks at this time. He cites historical data showing that people who hang on to stocks during market corrections see their portfolios perform better over the long run.

“As the mantra goes, ‘Stay calm, stay invested, look for opportunities,’ ” he says.

A market drop is also a good time for advisors to remind clients why they’re invested, Mr. Neff says. And, if they’re uncomfortable with the risk, it could be time to review their asset mix.

“The question is: Have your goals changed or has your tolerance for volatility changed? The answer should guide your decisions,” he says.

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Evan Turner, a financial advisor at Nicola Wealth Management Ltd. in Kelowna, B.C., says many advisors spend years preparing clients both financially and psychologically for bear markets.

“Often, it’s not until you get one of these events that you need to come back to the portfolio design and explain why you’re taking this approach,” says Mr. Turner, whose firm provides pension-style portfolios that include a mix of public and private assets. “Risk will inevitably rear its ugly head. You have to make sure your portfolio design can accommodate different economic environments.”

Today, Mr. Turner is encouraging clients to focus on their individual financial plans and not the negative headlines.

“I bring them back to the time frame, their goals and focus on the cash flow as opposed to the volatility,” he says. “This is tough right now for a lot of Canadians, but we think it will pass. ... We encourage clients not to be fearful. We’ll come out of this and there will be opportunities.”

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