The COVID-19 crisis has had an ugly economic impact since cases first started exploding in March. In the weeks since, millions of Americans have lost their jobs, while others have seen their income take a hit as businesses buckle down and look to lower expenses. And let's not forget retirement plans -- Fidelity reports that the average 401(k) is down $20,900 compared to the close of 2019, while the average IRA is down $16,500.

But it's not just that retirement plan values have dropped during the pandemic; it's that workers are also rethinking their plans to keep funding them. An estimated 55% of Americans plan to make change to their retirement contributions, reported Mass Mutual in April, and of those, 54% intend to contribute less. Given the number of people who are struggling financially, that's not surprising. But should you cut back on funding your IRA or 401(k) as the COVID-19 crisis plays out? Or should you stay the course despite the economic uncertainly that abounds?

Glass jar filled with bills and coins perched on a ledge labeled retirement

IMAGE SOURCE: GETTY IMAGES.

Assessing your finances

If you've managed to retain your usual paycheck throughout the pandemic, then you may, in theory, be in a good position to keep funding your retirement plan, or even increase your contributions. Some people are actually spending less money now than usual. With stay-at-home orders in place, many Americans aren't paying to fuel their vehicles or go to restaurants. Some are also getting a temporary break on child care costs, what with many centers being closed (of course, those same people may be struggling to manage working from home with caring for children, but at least the cost savings may be there). As such, you may be able to keep putting money into your IRA or 401(k).

But before you do, ask yourself these two important questions:

  1. Is my emergency fund solid? Under normal circumstances, it's smart to have three to six months' worth of living expenses tucked away in a bank account. Given current economic conditions, you should really aim for the higher end of that range. With much of the country still being shut down, it's hard to know when the economy will open back up, so it could take much longer to find a job following a layoff in 2020 than in other years. As such, make sure your emergency fund has enough money to sustain you should unemployment become your reality.
  2. Is my job secure? Maybe you've managed to retain your job so far, but if you work in an industry that's likely to bear the brunt of COVID-19's wrath, then you may find yourself on the chopping block sooner rather than later. Such industries include, but aren't limited to, travel, event-planning, and entertainment. If you're worried about the viability of your industry, you may want to sock away even more than six months' worth of living expenses -- perhaps more like a year's worth.

If you're confident in your emergency fund and aren't particularly worried about your job, then it pays to put as much money as you can into your retirement plan. But if your emergency fund isn't complete, or you have decent cash reserves but are concerned about your job and therefore want more, focus on building your near-term savings first. Though right now is actually a good time to load up on discounted investments in your IRA or 401(k), you shouldn't fund your retirement plan at the expense of your near-term needs. You're better off making sure you're covered for the next year and change, and then socking money away for an important yet potentially far-off milestone like retirement.