What to Do if Your Retirement Savings Took a Hit in 2020

All is not lost if your retirement account got off track last year.

It appears that some of us have spent the first months of 2021 talking about how awful 2020 was. Today, we're going to touch on one reason it hit some people hard.

Even if you were fortunate enough to avoid contracting COVID-19, many Americans were forced to deal with income loss. This was also a time when millions experienced a loss in retirement savings. And this happened despite the fact that U.S. corporate profits hit record highs in the third quarter of the year.

Three reasons why retirement savings took a hit

If you watched your retirement savings dwindle or realized that it wasn't growing at the rate you expected, it was likely for one of these reasons:

1. You work for one of the nearly 10% of U.S. companies that suspended their 401(k) match, telling employees that they could no longer afford the perk.
2. You lost your job and had to dip into savings to keep a roof over your head and food on the table.
3. You're a business owner forced to shutter your doors as COVID-19 began to spread.

How to get your retirement savings back on track

The thing about a crisis is that it offers the opportunity to reassess where you stand and to come up with a new plan for the future. If you're worried that you'll never recover, take a deep breath. Investing has always been like riding a teeter-totter. Sometimes you're up,and sometimes you're down. Historically, though, investors tend to eventually land in the "up" position. Here are steps to take if 2020 left your retirement account a little worse for the wear.

Check the status of the 401(k) plan at work

If your company suspended its 401(k) matching program, check with human resources to learn if it's been reinstated. According to a survey from Willis Towers Watson, approximately 2.5% of the companies that initially halted their contributions had picked them back up by December.

Open an IRA

If you don't already have an IRA account set up, consider opening one now. Like a 401(k), an IRA is a retirement plan. It allows you to save money toward retirement and can help make up for last year's losses. Here are the individual contribution limits for traditional and Roth IRAs for 2021:

• $6,000 ($7,000 if you're age 50 or older)
• If you earned less than $6,000 (or $7,000 age 50 or older), the maximum contribution is your taxable income for the year

Note: We recognize that you may not have the extra funds available to contribute right away, particularly if you were hit hard by the events of the past year. One of the great things about an IRA is that, depending on your income, it may reduce the amount of taxes you owe at the end of the year. Another benefit is that you don't have to come up with a specific amount of money all at once. As life begins to normalize, you can contribute what you have available when it's available.

Explore a Solo 401(k)

A solo 401(k) plan is designed for self-employed individuals with no employees. It operates similarly to a regular 401(k), and like an IRA, puts you in control of your retirement savings. There are limits to how much you can contribute ($19,500 annually, or $26,000 if age 50 or over. Plus, as the business owner, you get to wear the hat of "employer" and contribute an additional 25% of your earnings).

The trick is to find a broker with tons of solo 401(k) experience that allows you to contribute at your own pace. Again, as you rebuild your finances you may not be in a position to contribute, but this plan allows you to add funds as you are able.

Free up funds

It's time to revisit your monthly budget, make cuts where (and if) possible, and tuck those funds into your retirement account. Even if the only thing you can cut is one or two premium channels, that could be $16 to $32 extra a month to rebuild your savings. You might not be able to recoup everything you've lost right away, but the sooner you get your money back to work, the faster it can grow.

Turn something you enjoy into a side hustle

If you have time available, take a look at some of the side hustles you can do from home. It could be fun (and distracting) to use your talents to make extra money, and you'll have more to save for retirement.

Automate your savings

Make it a priority to pay yourself first by making retirement contributions automatic each month. As long as you have enough income to pay your basic needs, your first priority should be feathering your retirement nest, and automation makes that easier.

Push retirement back a bit

Taking a hit to your retirement account doesn't mean you have to work an extra 10 years, but it may be easier to recover if you add to the number of years you plan to work. Each year you delay retirement increases the amount of Social Security benefits you receive. If you're healthy, consider making up for 2020 with an extra year of employment.

When we look back at 2020, hopefully we feel more than regret. We're fortunate to have survived it, and we're charmed if we learn from it. Now that you know how easy it is to lose part of your retirement in a crisis situation, double down on protecting yourself. To that end, consider putting an emergency savings plan in place and protecting your assets from whatever the future may hold.