It’s been a tough year, but here’s how to get your retirement plan back on track.
THE CORONAVIRUS pandemic has been a huge financial strain on Americans, as they suffer through furloughs, layoffs and pay cuts. Some people have stopped or reduced the amount they are putting in retirement accounts, and others have tapped into a 401(k) or IRA to help cover bills.
“This year has been the most stressful period for our clients,” says Jeffrey Corliss, managing director and partner at RDM Financial Group at Hightower in Westport, Connecticut. “Not only did the market drop, but we had the pandemic and the social issues. It was a tough year.”
Here’s a look at how the pandemic has impacted retirement planning:
- Stress levels are high.
- Less saving for retirement.
- Emotional decision-making.
- Forced early retirement.
- Less spending.
Stress Levels Are Extraordinarily High
It’s difficult to focus on financial preparations for retirement when you are facing more immediate financial concerns and worried about the future. “Everybody moved up a rung on the anxiety ladder due to COVID,” says P. J. DiNuzzo, president of DiNuzzo Wealth Management in Beaver, Pennsylvania, and author of “The Seven Keys to Investing Success.” “If you came into this with no anxiety, you now have anxiety. If you came in with anxiety, now you have high anxiety.”
Sticking to an investment plan can be especially difficult at a time when there are wild swings in the stock market. “There are so many unknowns and so much uncertainty as to how you will resolve some of these issues,” says Greg Hammer, president of Hammer Financial Group in Schererville, Indiana. “People are afraid right now. They are panicked to make big moves. A lot more people are sitting on the sidelines, sitting in cash.”
Less Saving for Retirement
Those who have been furloughed or laid off are not able to take advantage of the automatic deductions for contributions to their workplace retirement accounts. “People are not working, so they are not contributing to their 401(k)s,” Hammer says. “Even though they are getting unemployment benefits, they are not getting that automatic contribution to their 401(k). People don’t have discipline to save outside of that structure.”
Additionally, the CARES Act made it easier for people to take early withdrawals and loans from retirement accounts. “People should avoid tapping into their retirement accounts,” Hammer says. “They should watch their spending. If possible, they should start saving as quickly as they can.”
If you need to temporarily stop saving for retirement, it’s important to develop a plan to resume contributions when you find work again. “If somebody has lost income and isn’t making contributions to a retirement plan, it is more important for them to sit down with an advisor,” Corliss says. “Do an accounting of where you are and what you are spending. Ask if there are things you can do to reduce expenditures, and develop a strategy on how to recover when you get back to work.”
Avoid making emotional decisions about your retirement savings and investments. “Don’t let fear and emotions control your investment decisions. A lot of people are letting that happen,” Hammer says. “They are making investment changes and getting out of the market. A lot of that is emotions.”
While you might immediately need to focus on a health crisis or child care issue, try to stick to your long-term plan if you can. “We’re going through all kinds of things affecting you mentally as well as financially,” Corliss says. “At times like this it’s really clear that everybody’s financial plan gets sidetracked and blown sideways. It’s about sticking to the plan, and that will help you be successful.”
The people weathering the crisis best are those with a financial plan. “The more time you spend on planning, the less you freak out,” DiNuzzo says. “The more time you spend on a quality plan equals less worry and less anxiety.”
Forced Early Retirement
Older workers who have lost their job and been unable to find new employment during the pandemic may be forced into retirement years earlier than planned. Those who enter retirementunexpectedly early may be retiring short of their savings goal. Taking Social Security benefits early can cause you to lose out on thousands of dollars in benefits over your lifetime.
Many people are spending less during the pandemic. “They are not traveling and not going out as much,” Corliss says. “Their expenses have been reduced.”
If you find that you have extra income due to fewer expenditures on social engagements and entertainment outside the house, consider increasing your retirement account contributions. Putting extra funds in a retirement account can qualify you for a tax deduction, and your savings could increase in value during a stock market recovery after the pandemic ends.