The COVID-19 pandemic has wreaked havoc on our society, from both a health and financial perspective. More than 30 million Americans have lost their jobs over the last six weeks, and both the Dow Jones Industrial Average and S&P 500 recently experienced one of the worst quarters in their histories.
If you're saving for retirement, there's a good chance you may have watched your investments take a nosedive over the last couple of months. But many older Americans are still optimistic about retirement, according to a recent survey.
Approximately 77% of retirees are confident they'll be able to live comfortably through the rest of their retirement, according to the Employee Benefit Research Institute's 2020 Retirement Confidence Survey. The survey data was initially gathered in January, but researchers conducted it again in late March to see if respondents' opinions changed due to the coronavirus pandemic. But even in March, 76% of retirees surveyed were still confident in their ability to enjoy retirement comfortably.
Whether retirement is approaching quickly or you still have decades before you can quit work, it's important to avoid getting rattled by COVID-19. Even if your savings have taken a hit, you can still retire comfortably as long as you have a strategy in place.
The stock market will always be a roller coaster
It can be nerve-racking to have your life savings tied up in the stock market during a downturn, and it may feel as if you're losing a lot of money right now. But keep in mind that the market always experiences ups and downs (with some more drastic than others), and you don't technically lose any money until you sell your investments.
Even if things look rough right now, the stock market will bounce back eventually. That's why it's important to keep saving consistently, even when the market is down. Saving for retirement takes decades, and if you temporarily stop investing until the market is on the upswing, you're not using your most valuable asset: time.
In fact, right now might actually be a smart time to invest because stock prices are lower. These low prices may not necessarily be a good thing for your current portfolio because it means your investments aren't as valuable. But it also means you can buy stocks for a bargain price. Even if you're simply contributing to your 401(k) or IRA rather than buying individual stocks, investing now means you're getting more for your money. Then eventually, when stock prices increase again, you'll reap the rewards when your investments skyrocket in value.
Times are tough right now for millions of households, so be sure you can afford to invest before you put all your money into the stock market. If you don't have a few months' worth of savings set aside in an emergency fund, make that your first priority. Ideally, you won't touch the money you contribute to your retirement fund, so make sure you're only investing cash you know you won't need for the foreseeable future.
Will you need to adjust your retirement plans?
Even if you stay the course and continue contributing to your retirement fund, you might still need to be flexible with your plans. If you're decades away from retirement, your savings will likely bounce back, and this recession may not impact your long-term strategy. But if you're just a year or two away from retirement, you might need to make some adjustments.
Nobody knows exactly how long it will be before life goes back to normal. And until the stock market recovers, it's wise to avoid withdrawing from your retirement fund. Lower stock prices mean now is a good opportunity to buy, but it also means this is a terrible time to sell. If you withdraw from your savings now, you'll essentially be locking in your losses.
If you're planning on retiring very soon, consider postponing it by a year or two so you can wait to start withdrawing your savings until stock prices are higher. This will help your savings last longer, and it will set you up for a more comfortable retirement. If you are unable or don't want to postpone retirement, consider tweaking your retirement budget so you'll be withdrawing as little as possible from your savings. If you have a pension or will be collecting Social Security benefits, do your best to lean on those income sources for at least a couple of years to give your investments more time to recover.
These are uncertain times, and there's a chance the pandemic has thrown a wrench into your retirement plans. But by continuing to invest consistently and creating a strategy behind your withdrawals, you can maximize your savings and make the most of your retirement.