When the coronavirus pandemic really hit hard in March, millions of U.S. jobs were shed within weeks and a lot of people suddenly saw themselves grappling with extra expenses or lost income. As a result, many people had no choice but to hit pause on their retirement plan contributions to focus on their near-term needs.
Furthermore, a lot of people actually withdrew funds from their retirement savings to cope with the impact of the pandemic. Generally, withdrawals taken prior to age 59 1/2 are subject to costly penalties, but those were waived last year for people experiencing financial hardships related to the pandemic itself.
But in spite of that, Bank of America reports that its employees made progress toward their retirement savings goals. In fact, the average 401(k) plan balance increased from $74,000 in 2019 to $81,000 in 2020.
To be fair, part of that increase could've stemmed from the fact that the stock market had a strong 2020, despite the initial blow the pandemic dealt it in March. And a lot of people may have also continued contributing to their savings, even with so much uncertainty abounding.
But while a lot of retirement plan balances may have grown in 2020, it could be the case that yours didn't. Here's what to do if you're now looking to play some catch-up.
1. Get yourself on a budget
If your savings balance didn't increase at all in 2020, you may be eager to pump more money into your retirement plan this year. And a good way to help make sure that happens is to put yourself on a budget.
Allocate a spending amount to each expense category that applies to you and pledge not to exceed it. That way, you may have an easier time carving out room for those IRA or 401(k) contributions.
2. Consider working a side job
You may only be able to squeeze so much money out of your earnings for your retirement plan. If that's the case, boosting your income with a side gig could really pay off. Since that extra money won't be earmarked for bills, you should be able to stick your side earnings directly into long-term savings.
3. Make sure to snag your employer match
You may not be able to max out your 401(k) plan this year or even get close. But one good way to sneak more money into your account is to contribute enough from your paychecks to claim your full employer match. And if you don't know what you need to do to snag that match, talk to your payroll or benefits administrator as soon as possible.
4. Compensate with a strong investing strategy
The right investment mix could help your retirement savings grow, even if you're only able to contribute modestly to that plan in the near term. If you have an IRA, consider loading up on a mix of stocks across various market segments for solid diversification. Holding stocks in your account will generally result in much higher returns than what safer investments, like bonds, will give you.
If you have a 401(k), you generally can't buy individual stocks. In that case, look at index funds that track indexes like the S&P 500. Index funds also lend to solid diversification, and their fees are low enough that they shouldn't heavily eat into your returns.
It's encouraging to see that retirement plan balances grew in 2020. If yours didn't, don't despair. Instead, take these steps to catch-up and get yourself on the right path toward meeting your goals.