Is it smart to retire during a pandemic? As you plan for retirement and manage retirement finances, here are points to consider before making a decision.
This year has been a challenge for everyone—but it’s been especially worrisome for those who were planning to retire soon. The fallout from the pandemic has impacted multiple areas of the economy, from roiling the stock market to bringing entire industries to a halt.
Investors may be challenged by reduced income, which impacts their savings ability or feeling skittish by the ups and downs of an unpredictable market. Amidst the uncertainty, revisiting your retirement plans makes sense.
But what do you need to consider as you determine whether the pandemic has thrown your retirement plan is off course? Evaluate these four factors as you strategize what do next:
Your Retirement Savings Progress Pre-Pandemic
This may seem intuitive, but a surprising number of investors don’t have a methodical plan for achieving their retirement goals. As a result, they may be unsure of whether they’re on track to meet their needs. If you haven’t already, meet with your financial advisor to assess your overall retirement needs and the plan you have for achieving those goals.
If you’ve already done so, revisit your plan and track your progress to date. If you’ve had no change in your contribution rate through the pandemic, then evaluate your portfolio performance in light of the market swings. You may be pleasantly surprised. While the market took a big hit at the beginning of the COVID crisis, it’s also had some significant recovery.
For example, Vanguard’s Balanced Index Fund, which reflects the 60/40 stock mix that is common to retirement portfolios, is up by 12.5% year over year. The bottom line: Don’t make assumptions about where your portfolio is—instead assess your needs, and compare them with your progress.
Can You Continue to Make Contributions?
Many U.S. workers have experienced job losses or reduced wages because of the pandemic. In fact, the unemployment rate has been hovering around 8% this fall, up from 4% when the COVID crisis began in March. A loss of a job or a reduction in earnings may have brought your retirement savings efforts to a momentary pause.
Your task now is to determine when you can resume your savings and whether you can catch up with the contributions you missed—or potentially carry on without them. The IRS allows savers over the age of 50 to make catch-up contributions of $6,500 to their employer-sponsored 401(k). That’s in addition to the $19,500 annual contribution limit.
If you only stopped contributions for a short while and can make them up, then you may be able to proceed with retirement as planned. Check with your advisor if you’re unable to continue contributions for an indefinite time period.
Your Existing and New Debt
Contributions and investment earnings comprise one piece of your retirement picture; and your expenses make up the other. This is where debt can make a big difference. You’ll want to evaluate how the crisis impacted your overall debt. Were you planning to pay it down, but then fell behind in payments? Did you incur any new debt as a result of the pandemic?
Ideally, you want to retire with as little debt as possible. Adding credit card or other debt to the picture can not only increase your retirement expenses but also potentially delay your plans. If you've accumulated more debt, create a strategy for paying it down quickly—and avoid taking on more if possible.
What Are Your Anticipated Retirement Needs?
You likely crafted your retirement plan long before COVID-19 was in the picture. For some, the pandemic may not have impacted what you want to do with your retirement or where you want to live. But others may have experienced a shift in plans or even their vision of what they wanted. For example, perhaps your grown children moved out of the city to be closer to you. Maybe you’re reevaluating a plan to live overseas or you’ve determined that you want to spend more time with family right now, even if it means a less luxurious retirement lifestyle.
Whatever the changes are, assess what they mean for your overall saving and investment strategy as well as your retirement expenses. If your anticipated expenses have dramatically increased, then you may consider pushing out retirement in order to save a bit more. On the contrary, if you’ve realized you don’t need as much as you think you did, you might explore an earlier retirement or a reduced work schedule that allows you to ease into your next phase.
The pandemic has affected multiple aspects of our lives and retirement planning in one. Get a sense of whether recent changes have impacted your retirement vision, and then make a plan to get back on course toward what you want.