If your retirement plan has lost value in the wake of COVID-19, you're not alone. Fidelity reports that the average 401(k) balance took a $20,900 hit between late 2019 and the end of March. And IRAs were similarly hammered, dropping $16,500, on average, during that same time frame.
Of course, a lower retirement plan balance isn't as terrible a thing as you might think when you still have many working years ahead of you. Sure, it's a hard thing to look at, but if you sit tight and leave your investments alone, and there's a good chance they'll recover. In fact, the stock market has already recouped much of the value it lost when it crashed back in March as COVID-19 cases soared.
But when you're retired and your IRA or 401(k) loses money, it's a different story. At that stage of life, you may not be in a position to just sit back and wait for your account to regain value, because you may need that money to cover your bills. Still, it does pay to try to leave as much of your portfolio intact as possible during a market downturn, so if you're sitting on a lower retirement plan balance than you had before the pandemic, here are a few options for generating income and leaving that account alone to recover.
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1. A remote part-time job
Since older Americans are said to be at a higher risk of severe illness from COVID-19, now's clearly not the time to sign up to bag groceries or drive for a rideshare company. But that doesn't mean you can't try to drum up some income via a remote gig. If you're a former teacher, look into online tutoring. A lot of students have fallen behind due to school closures and remote learning challenges, so this summer may be a good time to engage interested parents. You can also look into remote accounting, marketing, editing, or whatever role your skill set supports.
2. Equity in your home
Many retirees who own homes either don't have a mortgage, or have paid enough into it that they have substantial equity in their homes. If that's the case, you may be able to borrow against your home to generate income that will allow you to leave your IRA or 401(k) untouched for a while. You could take out a home equity loan, which works like any other loan -- you borrow a sum of money and pay it back over time. Or, you might prefer a home equity line of credit, or HELOC, which gives you the option to borrow against your home as you need it. With a HELOC, you're not instantly racking up interest as you would with a home equity loan, so it's a more flexible option.
3. Investments in a brokerage account that aren't down
While a lot of investments have lost value during COVID-19, you may have one or two outliers in your brokerage account. And if that's the case, you're better off liquidating those stocks for cash than you are taking retirement plan withdrawals that force you to lock in losses. Of course, you will be responsible for capital gains taxes on the investments you sell that have gained value since you bought them, but as long as you've held those investments for at least a year and a day, the tax rate you pay on them won't be as high as it would be for short-term gains -- gains on investments held for a year or less.
Seeing a lower IRA or 401(k) balance than you had months ago is disheartening at any age. But if you're already retired, it can be downright alarming. If you're in a situation where taking retirement plan withdrawals right now would mean locking in losses, then it pays to explore alternate income sources you can access to ride out the storm. In time, there's a good chance your IRA or 401(k) will recoup its value, but the key is to leave it alone so that can actually happen.
