The Economics of a Pandemic and Our Retirement Savings

The COVID 19 pandemic poses enormous economic challenges for families all over the world.  

During our working life we accumulate assets usually on a tax-free platform such as a pension or provident fund and then when we stop creating income from our occupation, we start to live off the assets we have accumulated. 

For this to happen we need our money to work for us during the accumulation stage and especially when we start using the monies to live. 

If we have accumulated 500,000 USD and start withdrawing 2000 USD a month to live off with no return the money will finish after 20 years. If we lose 50% after a crash, then we will have no more money after 10 years. If we manage to secure a return of 5% on our accumulation, the 200,000 USD will give is the 2000 USD a month and will be there as a security for us all our lives and we will transfer it to our beneficiaries.  

The Economic Consequences of the Pandemic

To understand the challenge we must understand that the COVID-19 pandemic has had far-reaching economic consequences beyond the spread of the disease itself and efforts to quarantine it on our lives. 

As the virus has spread around the globe, concerns have shifted from supply-side manufacturing issues to decreased business in the services sector. The pandemic caused the 2nd largest global recession in history, with more than a third of the global population at the time being placed in lockdown. 

During the earlier stage of the pandemic, supply shortages were expected to affect several sectors due to panic buying, increased usage of goods to fight the pandemic, and disruption to factories and logistics in mainland China. There have been instances of price gouging. 

There have been widespread reports of shortages of pharmaceuticals, with many areas seeing panic buying and consequent shortages of food and other essential grocery items. 

Global stock markets fell on 24 February 2020 due to a significant rise in the number of COVID-19 cases outside mainland China and on 28 February 2020, stock markets worldwide realized their largest single-week declines since the financial crisis of 2007–2008. Every news bulletin that talks about developments in the vaccines or possible medication creates positive volatility and every bulletin about new strains of the virus-negative volatility. It is difficult to live in such a world. 

The Pandemic Hit the Most Vulnerable Hardest

The economic impact of domestic containment policies for Covid-19 has been compounded by external shocks such as lower commodity prices, depressed demand for exports across the board and disruptions to value chain linkages, as well as a collapse in tourism.

While everyone faces a risk of infection, the economic shock associated with Covid-19 has been far from even, hitting the most vulnerable hardest. The vulnerable families are more likely to be concentrated in occupations and sectors most affected by closures and are less likely than others to be able to work from home. They are also less likely to have permanent contracts. This makes them especially vulnerable to job and income losses. 

In economies that have a dependence on migrating workers, many of these also workers appear to have returned to their home countries, at least temporarily, thus creating voids in the labor markets.

We Must do Risk Assessments and Make Contingency Plans

The fact is that the world economic system is characterized as experiencing significant, broad uncertainty. 

Economic forecasts and consensus among macroeconomics experts show significant disagreement on the overall extent, long-term effects, and projected recovery. Risk assessments and contingency plans therefore must be taken with a grain of salt, given that there is a wide divergence of opinion. 

Lately, the record-high energy prices have been driven by a global surge in demand as the world quit the economic recession caused by COVID-19. 

Over the past few months, inflationary pressures have risen and are already beginning to cause market concern. Every single economic data point hints at continued inflationary pressures over the coming months, which has many questionings about what’s next.

So where do we go with this when planning our investments? 

Decisions about investments should always be done on an individual basis based on what we need to achieve and our personal life goals but aside from the many challenges of this era, there are many opportunities. 

Can we achieve a sustainable strategy that will create the income we need to live a life of dignity and security while protecting our families against market risks? The answer is Yes but this must be done with the help of a professional and aligned with an academic methodology.