Is COVID-19 Impacting Retirement Accounts? Here's What to Do

A father stands in a kitchen and considers how COVID-19 impacts retirement savings while watching his children play.

If you're keeping an eye on your 401(k) this year, you know that the annual return for 2020 isn't setting any records—the annual return for IRAs hasn’t been great either. The total retirement assets dropped by double digits between the end of December 2019 and the first quarter of 2020.

Here's what the market volatility caused by the COVID-19 pandemic means for your retirement savings—and what to do.

Don’t Let Your Emotions Rule

Your instinct may be to follow herd behavior and pull your money out of the market or stop contributing to your retirement funds because of market volatility. You can avoid following the crowd by taking some time to sit down and assess your current financial state. This is where you can also speak with an advisor. Only then should you make a decision on whether you need to adapt your investment strategy. For example, if you need the money in the short term due to job loss, then pausing contributions may make sense.

Meet with Your Financial Advisor

Before you make any changes to your retirement plan, meet with your financial advisor. They can help you remove any emotions from your retirement planning and approach it in a pragmatic manner that addresses the current market volatility and your short- and long-term plans.

Check Contribution and Withdrawal Changes

Retirement and financial planning associations asked for delays in retirement contribution deadlines. In March, the Treasury Department and the Internal Revenue Service (IRS) announced federal income tax return and payment relief in Notice 2020-18. This gave some more time to contribute to IRAs. Check with your plan to see if there have been any changes in your contribution deadlines.

Diversify Your Portfolio

Many investors felt the effect of COVID-19 in their portfolios when the market plunged in March. While there has been some recovery, one of the best ways to minimize a loss to your portfolio is to diversify your assets. That way, safer assets can offset losses from the more high-risk holdings. One example is bonds and stocks. Generally speaking, they move in different directions so when stock prices fall, bond prices go up. These days you can build a diverse portfolio for minimal fees.

Keep Contributing to Your Retirement Plan

The market may be volatile right now but it also works in cycles. In the long-term, markets go up after a drop. If you aren’t retiring for more than a decade or two, you have enough time to ride out the downward cycle of this year and benefit from the upward trend. Plus the sooner and the more often you contribute to your retirement fund, the longer you have to benefit from growth and compound interest. If you are closer to retirement, consider reassessing your risk tolerance and moving your portfolio into more conservative assets that will hold more value over the long-term.

This is a challenging time. While we’re all looking at our retirement funds and the market, it’s key to remember not to react emotionally. Instead, take the time to talk to your advisor and make decisions that best address your short- and long-term retirement plans.

What If You're Already Retired?

If you're already retired, Congress made it easier to withdraw money from your retirement funds. They passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in March. While the Act details what can be done for various retirement plans, part of the Act eliminates tax penalties on some early withdrawals and relaxes the rules on loans you can take from certain types of accounts.

The accounts that are affected by the CARES Act are the traditional IRA and employer-provided plans like a 401(k), a 403(b) or a defined contribution plan. You can take out up to $100,000 from your retirement accounts without penalty.

According to the Consumer Financial Protection Bureau, the CARES Act gets rid of the 10% early withdrawal penalty if you’re under the age of 59.5 years. A third of the money you withdraw will be considered as income in your taxes for the next three years. You can also pay back what you withdrew.

There are certain qualifications to withdraw from your plan under the CARES Act so contact your employer and financial advisor to find out if this is the right option for you.

The views expressed by the author are not necessarily those of Fifth Third Bank, National Association, and are solely the opinions of the author. This article is for informational purposes only. It does not constitute the rendering of legal, accounting, or other professional services by Fifth Third Bank, National Association or any of their subsidiaries or affiliates, and are provided without any warranty whatsoever. Deposit and credit products provided by Fifth Third Bank, Member FDIC.