Millions of Americans have been negatively impacted by COVID-19. Some are out of work, while others have seen their retirement plan values plummet over the past few months.
If you've lost your job during the pandemic, or have lost money in your 401(k) or IRA, you may be thinking of delaying retirement. And you're not alone. In fact, 26% of Americans say they may postpone retirement due to the ongoing economic crisis, according to the May 2020 Simplywise Retirement Confidence Index.
But do you really need to go to the extreme of delaying retirement? Or is there a way to salvage your original plans?
Can you stay the course?
If your initial plan was to retire at some point in 2020, then you may, unfortunately, need to get on board with postponing that milestone. Right now is a bad time to start taking retirement plan withdrawals because for the most part, account balances are down, so removing funds from your 401(k) or IRA could mean locking in losses.
On the other hand, if you weren't planning to retire for at least another year, you may be able to stick to that plan. We don't know how long the current economic crisis will continue, but if things improve on the COVID-19 front -- whether that means a viable treatment or a widely available vaccine -- there's a good chance the stock market will respond positively, in which case you could see your 401(k) or IRA balance climb quickly. And if you haven't lost your job in the ongoing crisis, and you're in an industry that's not particularly susceptible to layoffs, you may have a solid opportunity to boost your savings in the coming year, thereby making retirement even more feasible.
In fact, a lot of people are actually saving more money than ever right now because they're not commuting or dining out, and they're canceling vacation plans due to safety concerns. That's money that can all go into your retirement plan, emergency fund, or both.
That said, if you're thinking of retiring relatively soon, make sure your assets are allocated in such a way that they're somewhat protected from wild market swings in the next year -- a somewhat likely scenario. If you're about a year away from retirement, you should have enough cash in your 401(k) or IRA to cover at least a year's worth of retirement expenses. You should also have a chunk of your assets invested in bonds, which aren't subject to the same level of volatility as stocks. If that's not the case, don't jump to move things around just yet, because in doing so, you could wind up locking in losses. Rather, you may want to wait for your retirement plan to recover and then make those changes so you're protected going forward.
Finally, if you're several years away from retirement, don't assume that you'll need to change your plans at all. A lot can happen in the course of, say, five years, so if that's the time frame you're looking at, don't get too nervous. At the same time, pay attention to how your retirement plan's assets are allocated, and make an effort to build a solid emergency fund in case you lose your job.
The fact that about a quarter of Americans are thinking of postponing retirement is understandable. But before you resign yourself to that inevitability, see if your original plans are salvageable. And if they're not, realize all isn't necessarily lost, and that delaying retirement even a few months could spare you a world of financial stress while enabling you to mostly meet that original goal.