The financial impact of coronavirus has led many of us to worry about having enough saved for retirement. Whether you have plans to retire in 30 years or next year, you may feel insecure about the nest egg you’ve built thus far. After all, the crisis has caused retirement accounts to lose value, Social Security offices to close, and savings accounts to pay lower interest rates. The good news is that we’re all in this together, and there are some things you can do to protect your retirement savings.
Here are some tips to help you feel more secure as we go through these difficult economic times.
Avoid buying high and selling low
It may be tempting to pull money out of the stock market during the COVID-19 era. Doing so, however, can hurt you as buying high and selling low is one of the greatest mistakes you can make as an investor. While the stock market may look bad now, it’ll look even worse for your personal portfolio if you sell and buy back in at a time the market is up 10 to 20%. Do your best to keep calm and carry on during these uncertain conditions.
Continue to save
During the 2008 recession, investors who continued to save were further ahead than those who stopped doing so. If you’re lucky enough to still be earning a paycheck, keep up your retirement contributions. Your mortgage, car loans, and other major expenses are likely staying the same, so there’s no reason to stop saving to increase cash flow. Also, remember that the less you save for retirement this year, the more you’ll pay in taxes. As a result, stopping contributions may not leave you with much extra cash flow.
Refrain from checking your accounts too often
Research has shown that people who check their accounts and trade on a regular basis are more prone to buying at the wrong time than those who only look at them every once in a while. So it could be in your best interest to distract yourself with other things and stay away from your accounts as much as possible. Checking your accounts every hour or day can do more harm than good.
Keep the rule of 100 in mind
Now could be the perfect time to adhere to the rule of 100. To do so, follow these step:
- Subtract your age from 100.
- The number you come up with is the percentage of your account that you should expose to stocks and other riskier investments.
- Allocate the rest of your money to safer investments.
If you’re 50, for example, 50% of your account can be exposed to risk while the other 50% should be kept in safer investments. Keep in mind that this is simply a rule of thumb. You can always collaborate with your financial planner or advisor to change your portfolio as you get older.
Avoid adding years to your mortgage
If you’re refinancing your mortgage to take advantage of record low rates and reduce your monthly payments, be careful to not add too many years to your mortgage. Here’s why: As long as you own your house free and clear, you won’t have to sell stocks to pay off a mortgage when you’re short on cash flow. A paid off house can give you some much needed peace of mind and stretch your retirement savings even further.
Consider working for longer
It could be helpful to pick up a part-time job or side hustle if you’re in retirement or nearing it. Extra income can add cushion to your retirement savings, helping you keep up with inflation and increasing medical costs. It can also allow you to taking delay your Social Security benefits and leave you with a higher check once you do collect them. If working isn’t an option, you may have to reduce your retirement spending if your portfolio hasn’t recovered sufficiently.
Use your emergency fund or 401k
While an emergency fund is important for everyone, it’s particularly crucial for retirees. If you’re retired or will be soon, an emergency fund can help you weather downturns in the market. A healthy emergency fund can give you the cash you need to cover your expenses and allow you to leave your retirement savings alone.
Once the market recovers and your investments regain their value, you can withdraw from your retirement fund again without facing significant losses. Don’t have an emergency fund yet? Here are some tips to help you build one.
- Cut your expenses: Take a look at your monthly expenses and figure out what you can reduce or eliminate. Put the extra money toward your emergency fund.
- Sell unwanted items: Chances are you own clothes, technology, appliances, or other items that you don’t want or need. Sell them on sites like eBay or Facebook Marketplace and use your earnings for your emergency savings.
- Take advantage of one-time income opportunities: One-time income opportunities like online focus groups and data entry can bring in some extra cash for emergencies.
Under the CARES Act, you can pull money from your 401k without the usual consequences. If you’re a younger individual who is cash strapped during this time, doing so may make sense. You can withdraw up to $100,000 and don’t have to worry about paying a 10% early withdrawal penalty.
It can be frustrating to watch your retirement savings plummet as a result of the COVID-19 crisis. By following these tips, however, you can increase your chance of a financially secure retirement. For more tips and information during challenging times, be sure to come back to our blogs.
- A Coronavirus Financial Plan: 5 Steps (Freedom Debt Relief)
- Coronavirus Program Tracker: Government Benefits and Private Programs for Americans (Freedom Debt Relief)
- 5 Best Apps to Effortlessly Save for Retirement (Freedom Debt Relief)
- How to Recession-Proof Your Retirement (University of Pennsylvania, Wharton School of Business)