Soon-to-be retirees are leaning toward postponing retirement due to the 2020 health crisis. COVID-19 is ruining the plans of Canadians approaching retirement age. The value of investments is falling due to the heightened volatility in the financial markets. If you withdraw them, your retirement savings might not be enough to cover living expenses.
The economic fallout from the pandemic is severe. Apart from investment losses, job loss is another fear factor. You must wait until you regain employment and rebuild retirement funds. Suddenly, retirement plans are in disarray.
Stock market crash
The stock market was off to a good start in 2020 that it peaked at 17,944.10 on February 20, 2020. When news of a spreading virus broke out, the situation became fragile, and the index started losing momentum. The official declaration of a pandemic by the World Health Organization saw the S&P/TSX Composite post its most significant single-day decline since 1940.
On March 12, 2020, Canada’s main stock market fell 12.34% to 12,508.50. The mounting concerns about the COVID-19 pandemic caused a worldwide market rout. Every sector closed in negative territory as the TSX erased four years of gains. The bloodletting was unprecedented that trading had to halt to contain the panic attack.
Amazing rebound
Fast forward to August 28, 2020 and you see the TSX closing at 16,705.80, or a 34% rebound from the tumultuous day in March. The index has successfully rebounded and is down by just 2% year-to-date.
Unfortunately, for retirees with investments in hardest-hit sectors and industries, you might have to cut losses and rebalance your portfolio by moving to safer grounds. In particular, airlines, entertainment, and accommodation services would take three to five years to recover.
The labour market also registered a comeback after losing about three million jobs in March and April. As of July 31, 2020, Canada has recouped more than 50% of them. However, the environment remains shaky as the pandemic is far from over.
Top retirement stock
The market carnage did not spare a prime retirement stock. Energy infrastructure heavyweight Enbridge (TSX:ENB)(NYSE:ENB) is collateral damage because oil producers are struggling. The stock price level in August 2020 matches the going price in late 2012.
However, market analysts recommend a buy rating for this $86.37 billion energy midstream company despite trading at its eight-year low. The forecast is a 41% climb from $42.65 to $60 in the next 12 months. Also, Enbridge has no plans for slashing dividend payouts. It’s currently paying a hefty 7.61% dividend.
North America needs Enbridge’s vast pipeline network to transport 25% and 20% of its total oil and natural gas requirements. Because the company derives the bulk of its earnings from fixed-fee contracts, the dividends are sustainable. Investors will continue to receive recurring income for decades.
A $100,000 investment in Enbridge will produce $634.17 in monthly passive income. The amount approximates the Old Age Security and Canada Pension monthly payments.
Game plan
Prospective retirees should adopt a new game plan in the wake of COVID-19. Supplement your pensions with investment income. Make sure when you exit the workforce, you won’t outlive your retirement fund.
