What COVID-19 Means for Your Retirement Savings

What COVID-19 Means for Your Retirement Savings

COVID-19 has battered the stock market, shuttered businesses and forced millions of workers into unemployment – turning the U.S. economy on its head. The economic crisis is likely affecting your short-term financial plans, and unfortunately, may also impact retirement plans, especially if you’re out of work or your income has been cut. Here are a couple common questions – and answers – to help you manage your financial wellbeing right now and position yourself to regain what you’ve lost in the future.

alarm clock and stacked coins

1. Should I stop my retirement plan contributions?
If you’re out of work due to COVID-19, you may be entitled to unemployment benefits, which, thanks to the government CARES (Coronavirus Aid, Relief and Economic Security) Act1, are being boosted and extended. However, for many people, the extra money still doesn’t entirely make up for their lost income. If you’re one of them, you may need to suspend your 401(k) or IRA contributions temporarily. But promise yourself that you will resume your contributions when your financial situation improves. Also, if you increase your contributions, you’ll have an opportunity to make up for the pause period, especially if retirement is still several years away.

2. Should I make an early withdrawal from my retirement plan?
Are you struggling to keep up with paying your bills and other expenses? Are you thinking about raiding your retirement savings? Thanks to the CARES Act, you can now do so without penalty. Pre-pandemic, you would have been hit with a 10% early withdrawal penalty for taking a retirement plan distribution before age 59 and a half. Now, if your finances have been negatively impacted by COVID-19, you can take up to $100,000 from your 401(k) or IRA. But there is this fact to consider: any money you withdraw is money that won’t be available to you in retirement. Explore and exhaust all of your options – negotiate with your creditors and utility service providers; take advantage of federal student loan relief programs; consider putting your home loan into forbearance, etc. – before tapping your retirement savings.

3. Should I keep working or retire now?
If you are still employed and it’s safe to continue working, you should – for as long as you can. Keep your job and keep earning income. Waiting as long as possible to retire means more opportunity to save money and grow your 401(k) or other retirement nest egg(s). Unfortunately, many retirees must rely on their social security checks. According to the Social Security Administration, the average social security payment in 2020 is $1,503 per month2, and that may not be enough to live on for the long term.

4. Who should I speak to for financial advice?
Expert financial advice can help guide and inform important life decisions like retirement. Do your research and seek out a certified professional. If you’re an Affinity member, you can speak with one of our financial advisors about your options.

Saving for retirement is challenging. COVID-19 is making it even harder. But remember this: retirement planning has always required a long-term vision. The economy will make a comeback. The markets will rebound. Your account balances will grow again. Keep calm and keep saving.

                                                   

For additional information and updates from Affinity about COVID-19, please visit https://www.affinityfcu.com/banking/we're-here-for-you.aspx

This information is for informational purposes only and is intended to provide general guidance and does not constitute legal, tax, or financial advice. Each person’s circumstances are different and may not apply to the specific information provided. You should seek the advice of a financial professional, tax consultant, and/or legal counsel to discuss your specific needs before making any financial or other commitments regarding the matters related to your condition are made.  

1 Retrieved from https://home.treasury.gov/policy-issues/cares

2 Retrieved from https://www.aarp.org/retirement/social-security/questions-answers/maximum-ss-benefit/