Don’t Let COVID Change Your Retirement Plan

Planning for retirement is never easy, but how do you do it in the middle of a global pandemic? Depending on where you are in your retirement planning, the best approach may be to stay the course you were already on.

The COVID-19 pandemic has turned the world upside down—impacting everything from people’s day-to-day routines and activities, to their finances and retirement savings. As market turbulence related to the pandemic has sent the value of some stocks plummeting and others soaring, and the value of people’s 401(k)’s doing likewise, the natural instinct may be to pull your retirement money out of these volatile investments. But selling when stocks are down can translate to substantial losses, especially if the downturn is only temporary, which we have already seen multiple times since the coronavirus arrived. Instead, if you already have contributions coming from your paycheck for your 401(k) plan, you should continue making them if you can afford to do so. Even better, if you are able to increase the amount you contribute to your retirement account, doing so now could mean a significant long-term boost to your overall savings.

Staying the course of your overall retirement plan doesn’t mean you can’t consider changes, however. Social distancing and working from home have had a huge impact on people’s overall spending, with most people experiencing a significant decrease in their monthly expenses. Now is the perfect time to take a closer look at your budget and see if there are any areas where you can permanently scale back unnecessary expenses. And if you are spending less, make sure that you are saving more—whether that means making additional contributions to your retirement portfolio or socking away more cash into your emergency fund. The worst thing you can do is find yourself in financial straits as you start retirement. Financial planners suggest having six months’ worth of your typical monthly expenses saved in cash to cover unforeseen expenses. Looking at your budget now may help you with those calculations.

If retirement is part of your near-term plans and your job is still secure, you may want to consider postponing your exit from the work world until the COVID-19 crisis plays out, and there is more clarity on how the markets will be impacted. If economists’ predictions prove to be correct, it is more than likely that the value of your retirement savings will take a hit until things turn around again. If you are able to postpone retirement and avoid tapping those funds while they are down, you’ll be better off in the long term. Continuing to earn income  is the best way to do that.  

If retirement is still quite a ways off and you haven’t yet begun planning, now is the perfect time to start. Building up money by investing in a 401(k) or an IRA when the market is down could prove to be a major jump start to your long-term retirement savings once the markets  rebound.

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