COVID-19 has affected millions of Americans in countless ways, including many older workers' retirement plans.
Saving for retirement takes decades of consistent work, and a significant financial setback could throw off your plans. Whether you've lost your job or have watched your savings take a nosedive over the last few months, preparing for retirement might be more challenging right now. But there are a few ways to ensure your plans stay on track.
1. Continue investing as much as you can
The stock market may be volatile right now, but that doesn't mean you should stop saving. In fact, it might be a good idea to increase your retirement contributions while the market is in a slump.
Stock prices are lower during a market downturn, which may spell trouble for the overall value of your investment portfolio. But it also means you can get more bang for your buck when you invest. The stock market is essentially on sale right now, and by investing as much as you can afford, you can reap the rewards later when your investments skyrocket in value as the market recovers.
Just be careful that you're not investing too much right now. If money is tight and you're struggling to make ends meet, throwing all your spare cash into the market may not be the best idea. So before you invest, make sure you won't need that money for the foreseeable future.
2. Don't make any retirement fund withdrawals
Contributing as much as you can is only half the equation; the other half is making sure you keep money invested.
The CARES Act has made it easier to tap your retirement fund bywaiving early withdrawal penalties and loosening the restrictions around retirement-account loans to cover coronavirus-related expenses. So it's tempting to dip into your savings if you need extra cash, but avoid this unless absolutely necessary.
When you take money from your retirement fund early, you're making it harder for your savings to grow. Your investments rely on compound interest to grow exponentially over time, so when you borrow or withdraw cash, your money isn't able to grow as much, and you'll need to save more later to catch up.
3. Have a solid emergency fund
Most experts recommend having enough cash to cover around three to six months of living expenses, but the majority of Americans are not saving enough. Approximately 27% of U.S. adults never had any emergency savings to begin with, according to a survey from the website Clever Real Estate; 11% already spent all their savings, and 32% have less than three months' worth of cash saved.
An emergency fund is crucial when saving for your later years because it can help you avoid tapping your retirement fund. Especially right now, as millions more Americans lose their jobs every week, you never know what the future may bring. A well-stocked emergency fund makes it easier to leave your retirement savings alone even if you lose your job or face other financial difficulties.
It's tough to balance your financial priorities, especially if you don't have much spare cash. After paying your bills on time, try to stash at least a little money each week for emergencies. Once you have enough to cover several months' worth of living expenses, go full speed ahead with investing for retirement.
Planning for retirement isn't easy, and a global pandemic doesn't help. Nobody knows how long it will take for life to return to normal, but you can still ensure you're setting yourself up for retirement success.