Almost a year in, COVID-19 continues to have a massive effect on families, communities, businesses, and the global economy. The long-range financial effect of this shock wave remains to be seen. What we do know is, millions of Americans are still unemployed, and many face financial challenges.
While economic upheaval can be unnerving, especially when you’re planning for retirement—it’s no reason to bury your head in the sand. Preparedness is important, now more than ever. And that means taking a realistic look at what a slowed economy means for your household budgets and retirement savings plans.
New Challenges Affecting Retirement Savings
The stock market, the housing market, international trade, and major industries like travel, restaurants, and professional sports have all stumbled due to the coronavirus crisis. In many cases, the economic blow has been felt more strongly by older Americans, notably in the job market. An April 2020 study estimated unemployment rates at 15.4% among workers aged 65 and older, compared with 13% for ages 25 to 44.
If you’re saving for retirement, we bet you’ve seen ebbs and flows in your accounts this year. For many, loss or reduction of income has meant smaller contributions to their retirement investment plans. And falling interest rates can have a negative effect on retirement savings accounts like defined benefits retirement plans (pensions) and annuities.
If your own retirement plans have been affected by the year’s sudden changes, you’re not alone. Some Americans plan to postpone retirement due to the current public health crisis. For others, the situation may cause them to retire earlier than planned.
Hidden Benefits Despite the Challenges
There’s no denying the challenges—but all is not lost. Whatever your retirement outlook, there are at least some financial silver linings.
Perhaps you’re in a field that’s been relatively stable up to now. There are obvious advantages to this situation: You can exit the workforce on your own timetable and you should be able to retire without any major changes. But there are also financial benefits to every situation, whether you can retire according to plan or not.
If you’ve been laid off or you’re otherwise leaving the workforce sooner than you’d hoped:
- You don’t have to worry about the risk of COVID-19 infection from work
- You might be able to retire now and go back to work in a stronger economy
- Consider the chance to downsize or move to a cheaper city now that you’re not bound by work
- See it as an opportunity to pursue a post-retirement career, business, or side-gig
If you think you may end up putting off retirement a little longer, keep this in mind:
- Economic behemoths like Medicare and Social Security are slow-moving, so the two systems remain relatively stable for the time being
- The longer you can delay collecting your Social Security benefits, the higher the payments will be
- You’ll have more time to save and build up your retirement portfolio
- You’ll reduce the number of years you’ll be making withdrawals
If you’re already retired, don’t forget that March’s CARES Act relief plan included a few benefits for retirees: no required minimum distributions in 2020 and waived early withdrawal penalties for IRA’s/401(k)s. Finally, we can all look forward to another stimulus package, hopefully by early next year.
What You Can Do to Improve Retirement Readiness
As Certified Financial Planner™ professionals, our advice to retirement savers amidst this uncertainty is, don’t despair—be prepared. Control what you can and leave the rest behind. Follow these steps to improve your retirement readiness:
- Make sure you have a solid investment process
- Optimize your asset allocation
- Make sure your portfolio is balanced for risk, taking into account your age
- Stay calm and keep contributing to all the accounts in your retirement investment portfolio
With these checks in place, you’ll know your financial plan is made to withstand risk from the start. So you don’t have to stress about finances when unexpected things happen. Talk to a financial advisor today to assess your retirement readiness from a financial perspective.
Do you know what your ideal retirement looks like? To see if you’re ready from a lifestyle point of view, take our 3-minute Retirement Readiness Quiz.