It's important to approach retirement with confidence in your ability to cover your expenses during your senior years. But a new survey by Principal reveals that confidence levels have taken a dive in the wake of COVID-19.
Last year, 18% of workers and 40% of retirees were confident they'd have enough money saved to live comfortably as seniors. This year, those percentages fell to 11% and 33%, respectively.
When we consider COVID-19's economic impact, it's easy to see why. Millions of Americans have already been forced out of work during the pandemic, and those who haven't are still grappling with income insecurity in the face of potential layoffs.
Retirement plan values have also dropped across the board from their pre-pandemic levels. And stock values, though much recovered since their lows in mid-March, remain subject to intense volatility as the COVID-19 crisis continues to play out.
It's not shocking, then, that retirement confidence is waning in light of the greater economic picture. But what may help is to understand the factors that lend to retirement confidence, and aim to emulate them. Here are a few identified in the aforementioned survey.
1. Having solid emergency savings
Among workers who exude retirement confidence, 60% have enough emergency savings to last seven months or longer. A robust emergency fund can help you avoid debt in the face of job loss or other financial hiccups. It can also create a scenario where you're not forced to take losses in an investment account by selling stocks when they're down due to a sudden need for money.
2. Seeking professional financial help
Though it's possible to retire securely without a financial advisor, working with one could set you on the right path. If you've yet to start investing, or have held back on other potentially lucrative decisions, because you're unsure how to proceed, it could help to enlist a professional to walk you through them and help you establish a personal financial plan. In fact, 60% of workers with retirement confidence also work with financial professional.
3. Having low levels of debt
A good 24% of workers with retirement confidence describe their debt problems as minor. By contrast, high levels of debt can thwart your savings efforts. When your income is wasted on interest charges, it leaves you with less money left over to fund a retirement plan or invest for the future.
4. Not being concerned about stock market volatility
It doesn't take a pandemic to cause wild swings in the stock market. An estimated 18% of workers with retirement confidence say they're not concerned with market volatility, and that's a good attitude to take. Those who worry about market downturns may be more inclined to act impulsively and lock in losses by selling investments at the wrong time. On the other hand, those who learn to take market volatility in stride may be better positioned to ride out periods of turbulence without taking losses in their investment accounts, thereby retaining more wealth for the future.
While it's easy to see why a pandemic might hurt retirement confidence on a whole, the good news is that there are steps you can take to change your outlook for the better. And you don't need to wait for the COVID-19 crisis to go away to take action. The sooner you start adopting smart financial habits, the greater your chances of attaining financial security not just in retirement, but in the near term as well.