How COVID-19 Has Forced Many Americans to Re-Assess Their Retirement Planning
The impact of COVID-19 is visible in nearly all aspects of American lives, including people’s retirement planning. According to a TD Ameritrade survey, almost 71 percent of adults in the country expect the pandemic to have an effect on their senior years and 21 percent think that the impact will be severe.
Another poll by MassMutual in April 2020 showed that nearly 55 percent of Americans already made changes or were planning to change their retirement contributions. Out of this group, about 54 percent were making lesser contributions to keeping more cash on hand.
Many Americans May Withdraw Money Early from Their Retirement Plan
The pandemic has caused panic among people. About two in five Americans or 38 percent say that this virus outbreak has affected their retirement plans. Many people are planning to withdraw money from their retirement plans earlier than expected. Nearly 41 percent of consumers feel they need to rethink their retirement plans to understand the pandemic's financial impact.
In recent months, the CARES Act increased the 401(k) plan withdrawal limit and waived the early withdrawal tax of 10 percent and federal tax withholding of 20 percent for people affected by this crisis. With this option available, now two in five Americans (39 percent) holding a 401(k) plan, are likely to withdraw early from their retirement plan.
In addition, nearly 63 percent of Americans are concerned about developing a strategy to address taxes during retirement. About 59 percent say that they are now worried about how taxes will affect their retirement income in the post-pandemic era.
How Americans Should Brace Themselves for the Potential Post-Pandemic Recession
Do Not Break Your Savings Just Yet
The value of your retirement account may have dipped during the pandemic but do not panic or rush to dump it. Taking out money from a 401(k) or IRA today means you will have less money for the retired days. If you keep your retirement savings intact, there is a good chance that it will recover over time and become better once the economy gets stronger.
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Keep Contributing to Your 401 (k) or IRA
It is a harsh reality that the pandemic has hurt people financially. Many people have lost their jobs and are clueless about dealing with issues like mortgage payments or student loans. If you lost your job during the pandemic, you have no other option but to put your retirement contributions on hold. However, if you are still working and had a pay cut, keep contributing to your retirement plan. This way, you will not lose your potential income from the retirement account.
Prepare Yourself to Deal with an Impending Recession
Currently, the economy is reeling due to COVID-19 and the experts are predicting another recession similar to the one that occurred in 2008-2009. Considering a potential downturn, make sure you do not rack up debts and keep your emergency fund afloat. Also, try to cut back your expenses in case your income suffers another setback.
Read Also: Getting Unemployment Insurance in the US During the COVID-19 Pandemic
Should You Consult a Finance Professional to Survive the Pandemic?
Studies show that before breaking or withdrawing from retirement plans, people are seeking guidance. An online financial survey by the Nationwide Retirement Institute in April 2020 showed that nearly one-quarter or 24 percent of American adults of 18 years or older consulted finance professionals. The ongoing pandemic has made people (48 percent) realize the need to protect their retirement income. Besides, 57 percent of US adults and 60 percent of investors have said that the current situation has made them recognize the significance of life insurance.
Before We Go
If your income is fluctuating during this uncertain time, it is better to keep your retirement account or emergency fund on standby. If you are thinking of dipping into your retirement savings due to this turbulence, resist that urge. Just keep setting aside around 10-15 percent of your income for the future. It will be handy.
If you have more questions regarding retirement planning, let us know. Give us a call at (650) 328-1000 or fill out the online contact form, and we will be happy to help you.
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