COVID-19 has impacted just about every aspect of American life, and that extends all the way into retirement planning. In fact, 71% of U.S. adults expect the pandemic to impact their senior years, according to a new survey by TD Ameritrade, and for 21%, that impact will likely be severe.
Surprisingly, Gen Xers are the ones most likely to indicate that the current crisis will have an extreme impact on their retirement plans. That could be due to the fact that 43% are still in the process of recovering financially from the Great Recession, which ended over a decade ago.
If you're concerned that COVID-19 will wreak havoc on your retirement plans, there are a few steps you can do to either prevent that from happening or minimize that impact. Here are a few important ones to start with.
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1. Leave your savings alone
Your retirement account may have lost value in recent months compared to where it stood before the pandemic hit home. If that's the case, don't rush to dump your stocks. If you leave your savings alone, there's a good chance your retirement plan will recover whatever value it lost once things improve on the COVID-19 front and the economy gets stronger.
Along these lines, resist the urge to raid your retirement plan to cover near-term bills. Though you're now allowed to do so without penalty if you've been hurt financially by COVID-19, removing money from an IRA or 401(k) today means having less money available when you're older. Instead, tap your emergency savings, find ways to borrow affordably, and seek other forms of relief, like forbearance on your mortgage.
2. Keep funding your IRA or 401(k)
If you're out of work during the pandemic, you may have no choice but to put your retirement plan contributions on hold. But if your income has largely held steady, do make an effort to keep pumping money into your IRA or 401(k). Pausing contributions for a period of time could create a scenario where you wind up falling short as a senior.
As an example, say you normally put $300 a month into your retirement account, but you hit the brakes on those contributions for the next six months. If that account normally generates an average annual 7% return on investment and you're 25 years away from retirement, by not saving that extra $1,800 this year, you could wind up with $10,000 less in retirement income.
3. Set yourself up to weather a recession
The economy's not in great shape right now, and the last thing you want is to rack up unhealthy debt during a recession. As such, make an effort to amass a solid emergency fund -- enough money to cover a good six months' worth of living expenses. At the same time, make an effort to cut back on spending in case your income situation gets worse, and if you already have high-interest debt, work on eliminating it once your emergency fund is complete.
The younger you are, the less likely the current crisis will impact your retirement. But that doesn't mean you're doomed if you're older, either. Once things take a turn for the better on the COVID-19 front, you may find that the economy picks back up and any value lost in your retirement plan will be recouped quickly. Try to keep your spirits up as we navigate these turbulent times.
