Please ensure Javascript is enabled for purposes of website accessibility

How to Win at Retirement, Even if There's a Second Wave

By Catherine Brock – Jul 1, 2020 at 7:32AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

When it comes to retirement savings, you have more control than you think.

Imagine that your retirement lifestyle was determined by the spin of the roulette wheel. That would stink, right? You'd watch helplessly, waiting for a little ball to put in you in poverty or to bring you enormous wealth. Fortunately, retirement is not a game of chance. It's a game in which the players -- retirement savers like you and me -- control the outcome.

You win at this game when your savings are sufficient to support the retirement lifestyle you want. And the big levers you pull to make that happen are your choices about how much you save, and for how long. You'll face headwinds in the form of market volatility, but you can power through those with discipline and patience. Follow these four strategies to keep yourself on track for a successful retirement, even if there's a second wave of COVID-19.

Man smiling while holding a fan of fifty dollar bills.

Image source: Getty Images.

1. Set financial goals

Hopefully, you already have a retirement savings target you're working toward. You can support that long-term savings plan by shoring up other aspects of your finances. Reducing high-rate debts and increasing your cash stores, for example, are two actions that will help you survive market volatility or even job loss -- with minimal disruption to your retirement plan.

Take a look at your finances today, and choose one high-priority goal that will improve your financial stability. Make a plan to achieve that goal within the next 12 months. Check that goal off your list and move on to the next one.

2. Invest consistently

The most reliable way to build wealth is to invest every month, over a long period of time. That includes contributing to and investing in your retirement account when the market is down.

Don't let volatile conditions scare you off your retirement plan. Volatility actually creates opportunity for you, and you benefit on both sides of it. When share prices go down, you can add to your share count with a lesser investment -- it's like buying mutual funds on sale. And when share prices go up, your portfolio balance rises, too. Keep your head up in all market climates by focusing on those positives.

Eight years from now, when COVID-19 is a distant memory, it won't really matter if you purchased fund shares the day before a market crash or the day after. What will matter is how many shares you have and what type of growth those shares can produce for you going forward.

3. Work your tax angles

Your 401(k) contributions are tax-free and grow on a tax-deferred basis. Those tax perks expedite your investment growth, but there is a trade-off. Once you retire, your 401(k) distributions are taxed as regular income, which puts a big dent in your retirement budget.

A supplemental source of tax-free retirement income will give you some flexibility to manage that future tax bill. But you can't pull that income out of the air post-retirement; you have to start the work now. If you can afford it along with your 401(k) contributions, put some extra cash in a Roth IRA or taxable brokerage account.

The Roth is a good choice if you meet the income requirements. Otherwise, save and invest in a taxable brokerage account, with the same long-term focus you apply to your retirement account. Buy and hold tax-efficient funds and exchange-traded funds, which tend to have lesser tax implications.

4. Don't tap your retirement funds

The CARES Act, passed in March, does make it easier and cheaper for you to pull money out of your 401(k). But that doesn't mean you should. In practice, it's very hard to recover from a sizable 401(k) withdrawal. You might be able to repay the funds, but you'll likely have lost earnings on the amount you pulled from the account. And if the market starts to build momentum before you pay the money back, those lost earnings could be substantial.

Taking money out of your 401(k) also exposes that cash to creditors. Your 401(k) balance is normally protected in a bankruptcy proceeding, but you lose those protections on any funds you withdraw.

As a rule, don't pull money from your retirement account. Look to other sources of cash first. Borrow from relatives or refinance your house instead.

You're (mostly) in control

There are aspects of retirement savings you can't control, like COVID-19 and its effect on your portfolio balance. To win at retirement, you have to overlook those factors and focus on the stuff you can control. Streamline your finances, continue investing in your tax-advantaged and taxable accounts, and don't turn to your retirement savings when you need to raise cash. That's how you win at retirement.

The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.