July 13, 2020

Retirement, Finances, & Covid-19


Watching the stock market for the past few months has helped strengthen my self-control. As I get the urge to call my financial advisor, I stop and remind myself whatever action I think I want to take, I will regret tomorrow. So, I put the phone back down and do nothing. The feeling passes.

Straight ahead will be a tremendous number of evictions because of missed rent payments. Small and medium businesses are struggling to hold on while others have likely closed for good. Travel remains risky or even impossible due to always-shifting restrictions from various states or cities. Who wants to fly somewhere only to be told you must spend 14 days in self-quarantine? Doesn't sitting next to anyone on a plane seem like a roll of the dice? Cruise ships...are you kidding?

While the economy remains royalty messed up, unemployment at recession-like levels, and coronavirus continuing to upend lives and the future, the investment numbers have rebounded from a disastrous drop in March to back within reach of the start of the year's mark. For a non-financial person like myself, this behavior seems counterintuitive; I would have expected the markets to tank right along with the overall mood in the country. But, apparently, the world, as seen through the eyes of Wall Street, is not all that bad. 

I know enough to grasp that financial markets often operate on emotion, anxiety, and what I will call future-sight. A day's bad news can hit them like a brick to the forehead....or be a financial non-event. I have been at this long enough to understand there is rarely a straight line between logic and the S&P 500.

So, that raises today's questions: how do we retired folks make financial plans for a future that is even more unpredictable and unknown than average? How bad do things have to get for us to make some serious moves of readjustment? Since interest rates barely break the surface anymore, how do we stay ahead of inflation? With governments using deficit spending as an everyday planning tool, how safe is anything? When the bill comes due, then what?

Do we make a connection between the inefficiency of the government to admit the seriousness of the situation and our financial stability? At what point does the overall market react to the short and long-term future in a way that harms our investments? 

And, if it does, then what? Personally, I don't have another 10 or 20 years to rebuild my financial foundation as it washes away. Natural up and downswings I handle; a Great Depression style scenario, not so much.

I am not looking for a hot tip, an easy answer, the throwing of a simple switch that calms the turbulent seas. I imagine I am asking questions that are more universal at the moment: what are we doing under the dual assault of Covid and an economy struggling to stay afloat? 

How have the events of the last five months affected your investments, your planning, your outlook? Have you started to think of cash stuffed in the mattress? Is a backyard about to become a large vegetable garden, with a few chickens thrown in to produce eggs and dinners?

Of, are you zen-like calm: "Been here before. It will sort itself out. Stay the course."

I am genuinely interested in whether the unique combination of events we find ourselves is affecting how you plan for your future. As the disease seems to be getting worse, we all could use a dose of neighborly help, sharing, and support right about now.


43 comments:

  1. Personally, my investment strategy in my retirement years is to live within my means. That is with the money I had saved, not future income, during my earnings years. I have about 10% of it in stock funds and some small amount in specific companies. A significant portion of my savings went into savings bonds. They pay me me monthy now than all my stocks.

    I just don't worry about that 10%. If I lose it, I won't affect my daily living that much. I don't need 10 years to recover from the loss. I know almost everything I do is against financial planners advice but it works for me and keeps the stress down. This strategy has worked fine for 20+ years.

    I must admit that the pandemic is really not affecting me personally that much either. Except for my once weekly restaurant visit and my summer bi-weekly RV trips, there is not a terrible lot of change. I do miss those activities but I can certainly find things to do in their absence. My wife simply loves staying around the homestead with her daily routines, so she barely knows anything about the consequences of the pandemic.

    It is not that I don't care about the consequences of others, that should be apparant in my daily blog posts. It is just that I can't do anything about their circumstances besides giving all my pandemic relief check to assure that the person in the Oval Office is gone on January 21,2021.

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    1. Excellent reply..my husband has been retired for 9 years, + I finally retired 4 years ago as a registered nurse. We live ever so comfortably, drawing on our social security, 401Ks, and living with no pension plans in place. We have invested in the stock markets, my husband as early as the 1970s. We live in Rhode Island, not far from our lovely beach, and go there frequently in the summer, packing a lunch, walking the beach and swim in the Atlantic ocean..in the winter, we walk in downtown Newport, RI. The only difference during the pandemic is we do not go out for our weekly lunches, or sometimes dinners. Other than that, Life continues on and we find happiness in our surroundings, and keeping our health well.

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    2. Our expenses are down enough that I haven't had to withdraw a monthly amount to supplement our Social Security checks. Of course, the two stimulus checks helped, as did the return of several thousand dollars in deposit for upcoming vacations. BUt, we are spending less since there is not much to do that costs money.

      Like RJ, Betty and I have been very conservative in regarding stocks. For most of my working life we owned very few, depending primarily on zero coupon and corporate bonds to build up our savings. My advisor has me up to 20% in stocks; I am comfortable with her approach for now.

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  2. I come from a long line of Stuffing The Mattress theorists. While I don't do that literally, the Covid-19 crisis has me burying my head in the sand regarding investment money matters. I just checked my online accounts last week for the first time in months and was happy to see I hadn't lost anything, hadn't really gained anything either. I don't use investment money to live on but its still scary times, since I almost lost my pension back at the beginning of the Obama administration with the banking crisis. So it's always in the back of my mind that Social Security and pensions money are not the given that I used to believe would always be there. What can I say, I also come from a long line of worriers.

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    1. I check the state of our investments once a month just because I fill in a spreadsheet to track things over the years. The good news is a decent recovery since March, and still in much better shape than in 2009-2010. So, I try to not react to daily news, but play the long game.

      A friend of mine panicked during the 2008-9 disaster and cashed out everything. Wrong move. He completely missed the recovery and had to move in with a daughter because he locked in his losses and couldn't afford the mortgage on his home anymore.

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  3. Dividend investing, which focuses on dependable income rather than asset-price growth, is the classic way to insulate yourself from these inevitable market gyrations. Buy companies that have paid out steadily for many years without ever cutting their dividends. Even when the stock price declines during a crisis or bear market, the fixed dividend will still arrive on schedule. When the stock price rises during a bull market, companies typically increase the dividend to keep the yield within an historical range, so a new floor is set. As long as you're able, automatically reinvest the dividend in the stock, which means you gradually get the fixed dividend on more shares over time, which enables you to buy more shares, and so on -- all without putting any new money into your investment. Einstein allegedly called this sort of compounding "the eighth wonder of the world." Buffett called it "the snowball."

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    1. Thanks for mentioning dividends as one of the keys to long term success. My financial advisor is a strong believer in dividends, reinvesting mine constantly. It is a slow, steady way to build up assets. Not as flashy as watching for hot stocks, but less nerve-wracking!

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  4. I too have been watching the markets and while I'm glad they have rebounded from the March declines and a bit surprised that they haven't gone down again with the recent COVID-19 surges. I had been planning on doing an annual rebalancing of my investments (i.e., my retirement account) which is currently 60/50 stocks/bonds. I was going to take 10% from my stocks and put it in bonds to get closer to a 50/50 balance. But with interest rates so low and the prospect of them rising due to the massive deficit they would lose value. That makes me wonder what the best course is.

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    1. You have posed the ultimate question. Interest rates are horrendous and stocks are very volatile, and likely to remain so for quite a while. Not only the uncertainty of the virus but the economic damage and a nasty upcoming political season will keep things unsettled. If Mr. Biden wins there will another reckoning after November 3rd.

      I know what my mother would say: cut expenses to less than income. As much as possible live off Social Security and RMDs from an IRA.

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  5. This will be interesting, because it will definitely show your demographics.
    We are in small investments, but mostly in cash and pensions. We won't grow like crazy and that is OK with us. We live below what we bring in, live in a paid for house and yes, grow a nice garden. Same thing for the last five years.
    We don't plan on our kids having an inheritance. We are giving as their children grow and their needs change. One just moved and the other is redoing their house to get ready for their oldest to turn 13. This year the investment is in homeschooling curriculum. Both families are replicating their diverse neighborhoods in coops. Every penny we give is well worth it.
    Who knows what the world will look like in 15 years when we are too old to be on our own?
    I feel into worry for about two months. It was horrid for my health. Back to living for today and planning for tomorrow- not worrying about it.
    Are you preparing your accounts for a Biden Presidency? Seems like an interesting change of course for the investor class.

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    1. It is interesting to read the various analysis reports on Trump versus Biden and the effect on stocks. Personally, I am more than willing to pay a price for the latter to win. But, Wall Street will not be as pleased, certainly in the short term.

      We do give both daughters a sum every Christmas time that is an "advance" on their final inheritance. Now is when the money is most needed, with growing families and health/employment concerns. There still should be a good amount to split after Betty and I are gone. But, my parents didn't believe in any early distribution and I thought that was a mistake that I didn't want to repeat.

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  6. My portfolio was prepared for a downturn, I just didn't think it would be a pandemic that would do it. My wife and I retired 5 years ago, both aged 62, and have been living off our retirement savings since then. We have a classic retirement portfolio of 50% stocks, 40% bonds and investment certificates, and 3 years of living expenses in cash. The idea was that any major market downturn should be mostly over after 3 years, we'll see.

    We also delayed receiving our government retirement benefits until age 70 (in 3 years which only by chance lines up perfectly with our cash reserves) to have the maximum guaranteed indexed monthly cashflow. The government pensions in Canada where I live are actuarially sound for at least the next 75 years so no worries there. By delaying our government retirement benefits when they do start flowing they should cover all of our living expenses no problem.

    Perhaps our biggest unknown is that last December we closed on a property in Mexico where we have been spending our winters for the last 5 years. I was fully prepared to perhaps lose some money on the property but to have even going there be in doubt is something we didn't anticipate. It wasn't that expensive to buy, there's no mortgage, but it seems we bought at exactly the wrong time. Sometimes it goes that way.

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    1. Real Estate can be like stocks: something that we completely miss on the radar hits and all the great plans are in jeopardy. BUying a property in Mexico qualifies! Eventually you will be able to use it...something to look forward to.

      In typical American fashion, Social Security is nowhere near the stable feature it is in Canada. I expect it to survive at least until Betty and I are past needing the checks, but I hold out little hope for my daughters and certainly, grandkids.

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    2. Despite any alarming headlines, I suspect US Social Security will be paid as promised. Not to do so would guarantee the politicians responsible would be promptly booted from office.

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  7. We don’t have much in the stock market and have had to adjust our financial outlook right from the start of retirement.Way back when, we were following a strategy of funding our retirement with BOND interest! Those times are long gone and we had to adjust our expectations. The articles in this morning’s news discusses the strange movements of the stock market just now.. and how the ride is definitely coming to an end.If I were heavily in the stock market at this age I would be looking to make adjustments very soon. We are moving straight into a Depression and I see Americans having to do what our ancestors did: Families will be moving back in together, yes, gardens and more self sufficiency will become the norm, (we are on a list for a garden plot at the community garden) and travel o will be a luxury as it was when I was growing up. Airlines will be doubling their fees as they struggle to survive,Who will WANT to travel, who will be able to afford it? As kids cannot really go back to school in many states, one parent is going to have to give up a job, families will be moving together or downsizing big time, as incomes shift, and I believe we are looking at a whole new way of life in America.. not overnight, and not without a ton of pain and suffering.As a natural optimist, I like to believe we will somehow help one another,come together in new ways, as families, as communities, but tI see a long road ahead. Ken had to close his practice up..that was our “extra” money that gave me a sense oof ease. It also fulfilled him immensely, in so many ways, to help people, and we are having to adjust to having that piece of his life all gone now. All gone now. Many of our VERY frugal habits from back when we were first married, are kicking in again.. and well, I wish I saw some sort of magical wonderful recovery, but I don’t think so.. not for at least 10 years.. it will be a long haul. We must adjust—the sooner the better...

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    1. I wish we hadn't sold our RV four years ago. A few thousand dollars in repairs and we would still have a safe way to explore the country. Luckily, we have done enough overseas travel that there is no "must-do" place we are itching to see.

      I agree that this experience is likely to create more family-connected bonds, and more many a simpler life. Single, widowed, or otherwise without relatives are a worry, however.

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  8. At this stage of the game I lean towards 5yrs of income needs in cash or cash equivalent accounts. For many this is not that much money when pensions and SS are taken into account. As far as the market future is concerned I tend towards the we are in a bubble phase. The problem with that opinion is none can say how long it will last. Remember how long the market kept going up in the late 1990's. Everyone kept piling into companies with 0 value and conservative investors looked like fools.
    If required to rank risk I would use the following ranked least to most risky. Social Security, US government pensions, Annuities, company pensions, state government pensions and teachers pensions. The states are the most endangered. They had already promised far more than they could possibly deliver before Covid. Now they will also see large decreases in tax income.
    RJ listed the most important asset. Live within your means. Now is not a good time to give away large sums to relatives or make large discretionary purchases.

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    1. Fred, your bubble analysis is something a friend of mine believes in and around 2010 sold all his assets including his house and moved everything into gold and cash. Finally he was right this year but it took a long time.

      Perhaps economist John Maynard Keynes said it best: “The market can stay irrational longer than you can stay solvent.”

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    2. Our 9 year old gas guzzler was slated to be replaced in March. That is on hold. An expensive set of vacations was cancelled, turns out we saved a lot. A new RV so we can safely travel? Nope: that is a few years of living money. And, yes, we have spend the last 44 years of married life living beneath our means. It is the ultimate revenge.

      You are right on target about the riskiness of state and local bonds. A few years ago they are a solid source of income. Now, no.

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  9. I'm Zen like about all this. Getting upset accomplishes nothing. I think the news media is so obviously biased on both sides that you can't trust anything you hear either.

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    1. Of course, the stock market does go up and down. I trust it when I look at that day's Dow Jones Average. But, interpreting exactly the whys of changes is speculation on everyone's part.

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  10. I'm with Kelli-Zen about it. We're 59 now. I retired a year ago and hubster will work another 4-5 years. Our investments are spread across risk options for a balance appropriate for our expected lifespan of 40 more years. My pension starts at age 67. While the temporary tax cut is in place, I'm doing IRA to Roth transfers to take advantage of that savings. We keep 2years expenses in a lower risk account for 3d cash access if needed.

    I am a Registered Nurse with a current license. If it gets super ugly by May, I will work on requirements for license renewal and go back to the OR part time but that need is unlikely IMO.

    We have no debt and own a 2nd home in the mountains-ad additional cash option of liquidation were to become necessary.

    We have lived below our means for 30 years and continue to do so. We only used 10% of my income and the remainder of my post tax income has gone into investments. We maintain hubsters max federal allowance of pretax investment as well.

    ZEN is a terrific image and we know and appreciate our Blessings.

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    1. Your situation would lead me to be totally Zen-like, also. A smart overall approach, back up plans, and a diversified investment portfolio equal a very nice sense of calm, regardless of what is happening. Good job.

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  11. Good question. Because we both have a background in Real Estate we decided a number of years ago to focus on what we knew. We have a large commercial building NNN leased that brings in a good amount from a very stable tenant and a residential home with a stable tenant. Both of our RE investments and our home are free and clear. We figure that as long as we can bring in something (even if we have to discount it for the times) we will still have income.

    We've also invested all our 401Ks in real estate (mostly apartments) with very low loans so they too should continue to generate income even if the rents have to be lowered (people will ALWAYS need somewhere to live.) We feel pretty comfortable that our investments along with SS should be enough for us to comfortably live in the future... Don't trust what will happen in the Stock Market and aren't even tempted. Living well within our free and clear lifestyle continues to be our strategy. And we believe that the economy is still in denial about what is coming. It will be interesting to see what happens.

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    1. At one point Betty and I owned 4 rental houses. The timing for us wasn't good. I was traveling a lot so she was left with maintenance issues to resolve. Plus, being home on weekends I didn't want to spend my little bit of free time on the houses.

      We made a little money but didn't need the hassle at that time. Unlike you, this wasn't our area of expertise and it showed. The rule about focus on what you know seems quite true in real estate.

      I have read so many different scenarios about what may be ahead of us economically, I guess I have decided nobody really knows, so what will be will be. We will adjust to whatever.

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  12. Bob, for all of my working life and much of my retired life I was very heavily invested in stocks, with a stock allocation that was far higher than any financial advisor would advocate. This had some downsides (October 1987, the DotCom bust in 2000-2002 and the Great Recession to name a few) and some upsides (just about all other times). But starting in 2016 I became more and more nervous about the age of the bull market and began selling stocks and converting to cash/bonds. The process was slow and was continuing right up to when the pandemic made itself known in February-March of this year. While the market gyrations caused a lot of variations in my asset allocation over the last few months, it has stabilized (for now) around 55/45 (stocks/fixed income). This is still a bit heavier in stocks than my target (given the advanced age that my last birthday has bestowed upon me), but I don’t have any good ideas for using the additional cash if I sell more stocks right now, so here I sit.

    Like you, I received a small financial windfall when the refunds for two international cruises that had been planned for this year came through. Since I delayed taking social security until age 70, I have a reasonable benefit check coming in each month and my wife has a teacher’s pension check as well. That income along with the cash portion of our investments keep us from having any immediate concerns for money. And I suspect that the virus imposed travel restrictions will keep us from squandering too much money over the next year or so.

    Longer term, the very low returns for CDs/Bonds, may be a problem…..I had planned for low returns, but I hadn’t planned on zero returns. But, in later years, if the stock portion of the portfolio doesn’t make up for the low returns on the fixed income portion then we can reduce spending below the levels in our plan without too much pain.

    But my personal confidence that my wife and I can manage financially through the rest of our retirement is based on a pretty big assumption: that the pandemic will end. Maybe not this year or next year, but relatively soon. Whether it ends because of a vaccine, herd immunity, genetic mutation, preventive plasma antibody infusions or due to treatments that cause the infection to be non-lethal, the pandemic must end. If it doesn’t end, then the rules all change, both from a financial standpoint and a personal action standpoint. What businesses will survive if there is a 0.01% chance of being infected when you use their service? How many people will travel again by air if the sound of a cough or sneeze in the row behind them signals real danger? Will we ever gather again with groups of friends to celebrate birthdays, weddings or graduations? I sincerely hope that the virus disappears sooner rather than later, but it needs to disappear for us to have any confidence in our retirement plans.

    So, I may not be quite “Zen”, but I could be “Zen-lite” in my view of retirement finances and the impact of Covid-19.

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    1. The reaction to a cough or sneeze is something most of us never reacted to before. But, as you correctly note, there is very visceral reaction now. How long before a sneeze is simply a sneeze? That is the key question isn't it?

      My advisor had to pull me up to 20% in stocks in the last several years. I never participated in the big run ups, like in the late 90s. But, then I never suffered much from the dot.com bust which followed immediately thereafter. I was comfortable with that outcome.

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  13. The way the market is acting doesn't make sense to me and I expect to see another correction before it all plays out. To reduce market risk I plan on working on a part-time basis for as long as I'm healthy to do so. The key is to find work that you love to do and when you can manage that retirement is pretty good. Learning to grow tomatoes,and raise chickens is not a bad idea either.

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    1. A couple three doors down from my daughter's home has a garden large enough to supply virtually all their vegetables and enough chickens to produce all the eggs their family of 5 needs...all in a standard sized suburban lot. As long as zoning laws permit such activity, it can be done!

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  14. Sue...left a brief comment that somehow disappeared. She was responding to something RJ mentioned about the election in his comment. She wanted to let him know she would be voting to keep Trump in office.

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  15. I pay no attention to the market. Like Fred, I keep enough cash to cover five years worth of what I call "extra expenses." Those are the ones not covered by SS and other regular income -- so it's not all that much, but enough so I never have to worry (or, not for five years anyway).

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    1. That is a nice-sized cash cushion. In today's world, five years seems like an eternity. You should be fine.

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  16. I am fortunate to not be fully dependent on the stock market's ups and downs. I benefit from the ups, of course, but I have a solid safety net to survive the downs. So, in answer to your question, I guess I'm more on the zen end of things. However, I recognize that that is a luxury in the sense that I know I'll be okay no matter what. And if I'm not, then that is where the zen is put to the test!

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    1. With your circle of close-by family and friends, you need not worry. With a blog entitled, The No-Way Cafe, I'd have placed you on the Zen side regardless.

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    2. The trick is not just to title it, but to live it -- ha!

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  17. We took about 20% of our current stock portfolio off the table in March, during one of the markets mini-recoveries, as a result of the pandemic. The stock market seems more optimistic about things than it should be, and it made us both nervous enough to want to reduce our risk just a bit. We now have a good ten years of living expenses in lower risk financial vehicles, including cash, which we could stretch out to 20 years if need be. Lets hope there's no need!

    It's hard to spend large amounts of money currently, which seems to be a common refrain here. Life just feels a bit to risky for big expenditures at the moment. Good for our portfolio of course, but maybe not so good for the overall economy? It's a conundrum for sure.

    Like many here, we are focusing more on feathering our nest. In our case, that means spending more money in our community. So since the pandemic began we've joined a local winery that offers free wine, and half price outdoor dining for members, we are researching where we can take golf lessons, and I'm exploring joining a tennis club, and taking sailing lessons. We'd also like to begin taking piano lessons, which can be done via Zoom rather than in person. So we are adjusting to less travel, and instead broadening our activities here at home.

    I've stopped fighting the changes to our lives, including the financial uncertainties, which is a hugh relief. We live below our means, we have lots of options on how we might need to adjust to even more financial uncertainty, we like where we live, we are healthy, and we are active outdoors daily, and that's all looking pretty darn good at the moment.

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    1. With parts of California locking back down again, your approach looks even better.

      With a new car likely this fall and a daughter whose livelihood was decimated by the virus, we are keeping a close watch on everything. I don't think anyone can predict how screwed up the next 6-12 months will be.

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  18. We feel we have "skate saved" our housing situation in the past few months. After almost two years of research and work, we sold our house, which was quite a money pit, and feel very lucky that the shutdown caused an apparent backlog in demand. As much as we loved the location, we could only foresee more extraordinary expenses - the past being the best predictor of the future on that house...always another big check to write. Of course, with this covid mess, who knows what the future will bring? But we wanted to get ourselves into a situation where we live in a new condo with low maintenance and on our SS with just a bit of savings every year and we made it. We fully expect the real estate market to tank with the economy in the next year or so, and we thank our lucky stars every day that we made it into our new place and are getting settled before the worst hits. I'm a natural optimist, but this pandemic is really giving me pause. The world feels really unsettled right now, and it's good to feel settled for the foreseeable future. Or at least until we need a CCC or assisted living.

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    1. Nice timing, Hope. I hope you are wrong about the economy, but things seem to be pointing in that direction. I want to use the equity from our current house to cover the CCRC buy-in. If the markets take a big tumble any time after about 2027, we will have to find a new plan.

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  19. As somebody who is totally dependent on savings and investments, I have adopted the ostrich approach and just hope those being paid to look after my funds know what they are doing. I know there will have been losses but it’s too dispiriting to add to all life’s other woes for the time being and I’m optimistic enough to think that when I’m finally brave enough to look, things will have bounced back! Not the greatest strategy for somebody who has always tried to be financially astute but these are strange times and it appears to be my coping mechanism.

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    1. It worked for me during the 2008 recession. I don't think I had the nerve to take an in-depth look until sometime in 2010.

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  20. The semi-regular hateful post about Boomers has been deleted. I get a version of that about once every 10 days or so and delete as soon as I am aware of it.

    Unfortunately, it appears that Elle's rebutal response went away too since they were linked.

    Sorry, Elle, but if you want to repost some of what you said that would be great.

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  21. I haven't been stressing about my retirement investments, mostly because I don't need them to support my monthly budget. And because I have mostly been staying home, my expenses are even lower than normal. I may also be lulled into complacency by living in a state that mostly has COVID-19 under reasonable control.

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