When cases of COVID-19 first started multiplying rapidly in the U.S., the stock market reacted, so much so that it plunged into bear-market territory in mid-March. Since then, stocks have managed to recover some of their value, but the toll on retirement plans is still pretty evident. And while it's disheartening to see a loss in retirement-plan value at any age, it's a downright scary notion for those who are close to ending their careers -- namely, those in their 60s who may only have a couple of years left in the workforce.
Unfortunately, the average retirement plan balance among 60-somethings fell 10.1% from Jan. 31 to March 31 this year, according to Personal Capital. And that puts near-retirees in a pretty precarious spot. If you're in your 60s and have seen a major decline in your retirement plan's value, here are a few important things to do.
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1. Try not to panic
Seeing a steep decline in retirement savings is highly unsettling when you're potentially retiring in a year or two. But perhaps the most important thing to do is not to panic, because if you give into that fear, you may be pushed to make poor decisions that cost you money in the long run.
One thing you must remember is that the loss you're seeing in your IRA or 401(k) is merely a loss on paper (or on screen). You don't actually lose money in a retirement plan until you liquidate investments when they're down. So if you sit back and give your retirement plan a year or two, you may find that your account balance jumps back up to its former level. After all, bad news on the COVID-19 front sent stock values plummeting, so it's reasonable to assume that good news -- say, a viable treatment or vaccine -- could send stock prices soaring.
2. Make sure your retirement plan assets are allocated appropriately
According to Personal Capital, savers in their 60s saw a lower drop in retirement-plan value than those in their 20s, 30s, 40s, and 50s, and the reason is likely that those closer to retirement have more of their money in bonds, which are less volatile than stocks. While now's not a great time to move money around in your IRA or 401(k), you should also take a look at just how your assets within that plan are spread out, and make sure they're allocated appropriately.
Though you certainly shouldn't dump your stocks in your 60s, you should also make sure to have a decent chunk of your savings in bonds -- and also in cash. If you're not happy with your current allocation, map out what changes you'd like to make once the market comes back up.
3. Keep funding your retirement plan
It's easy to let a massive decline in retirement-plan value drive you to stop funding that account. But remember, the reason your plan value is down is because investment values are down, so if you keep saving, you'll have an opportunity to add those same low-cost investments to your retirement portfolio. Also, there are tax benefits you can reap when you sock money away in an IRA or 401(k), so if you can afford to keep contributing, there's no reason to give those up.
4. Be flexible with your plans to retire
Maybe your initial goal was to retire in the spring of 2021. While that may still be possible, if market conditions take a turn for the worse (say, due to a second wave of COVID-19), you could see further declines in your IRA or 401(k). Or, maybe not. We just don't know. That's why right now is a good time to be flexible with your retirement planning. Rather than set a single date in stone, aim for a two-year range. That may not be ideal, but it may also be a more appropriate approach given the circumstances.
Of course, this isn't to say that you absolutely can't retire when your IRA or 401(k) is down. If you have other income to tap (say, emergency savings, a home equity line of credit, or Social Security benefits), you may be able to move forward with retirement and wait for your account value to come back up before taking withdrawals from it. Similarly, if you have a lot of cash in your IRA or 401(k), you may not need to change your plans at all.
But there's something to be said about not pulling the trigger on retirement when you're sitting on 10% less value in your retirement account. So if you're able and willing to be flexible, it could really pay off and save you a world of stress.
Seeing your retirement accounts drop in value is harrowing at any age. But a few smart moves on your part could pave the way to a financially sound, comfortable retirement, despite the setback you may be experiencing now.
