How COVID-19 Has Affected Retirement Planning
On May 22nd, 2020, Ohio's unemployment rate reached 16.8%, the highest peak ever since record-keeping began in the state. The Coronavirus pandemic has adjusted the trajectory of nearly every facet of our individual and collective lives, and planning for retirement is certainly no exception. Mass layoffs and a near-total lockdown on business activity in the United States have market shareholders on edge, and you're probably already anticipating that the pandemic will affect your retirement planning, too. Will everything you’ve planned and saved for be upended? Do you need to adjust your portfolio, or should you do nothing and wait for the storm to pass? Data from a breaking study, showing how workers of all ages and earning levels are handling the fallout, as well as a brief rundown of new legislation meant to aid those currently experiencing economic hardship, should help shed some light on how we, ourselves, might wisely move forward financially .
The question that's been running through most of our minds so often these days is a simple one--what are we doing?? It's a broad, seemingly unanswerable query, but, when the focus is narrowed to what we’re doing with our retirement funds in the midst of the COVID-19 pandemic and who’s doing it, conclusive answers become a lot more attainable. In fact, those answers can clearly be found through the analysis of a recent Fractl study for which 1,004 U.S. adults shared their mid-Coronavirus economic strategies, as well as the hopes and fears they harbor for retirement. Here’s what they found:
For Retirees
36.9% of retirees report financial hardship directly due to the pandemic.
1 in 4 feel that they’re now more likely to have to return to work.
20% have removed financial assets from the stock market.
For Younger Workers (10+ years away from retirement)
21.2% have stopped or reduced retirement contributions.
Nearly 70% are saving more due to COVID-19.
20-70 year-olds suffered the biggest blow to their average retirement account balance at a decrease of about 12.3%. That’s more than twice the average balance reduction of those in their 80’s!
According to a YouGov Study of 9,675 U.S. adults, commissioned by Forbes Advisor, very few respondents have actually taken advantage of recently-enacted legislature meant to assist those experiencing a financial crisis, namely—The CARES Act, which was created as a direct response to the COVID-19 pandemic. In its distilled form, The CARES Act mainly does these three things:
doubles the amount one can take out as a 401(k) loan.
allows some investors to take early “hardship withdrawals” of up to $100,000 from 401(k)s and IRAs, waiving the 10% penalty tax typically incurred when one takes an early withdrawal on these accounts before the age of 59 1/2.
provides retirees and those with inherited IRAs the ability to forego the Required Minimum Distribution (RMD) in 2020.
Findings from the Forbes study indicate that only 4% of the entire participant group had actually taken a 401(k) loan, notably differing from the 11% of participants ages 25-34 who had. And, only 5% of total respondents said they had either taken a hardship withdrawal or decided to skip an RMD this year, while about 8.4% of the younger group said they had. Obviously, a great degree of variety exists in each of our individual financial portfolios. As we saw in both the Fractl and Forbes Advisor studies, some of us who are nearing retirement and have more to lose and less time to make up for wrong decisions are playing it cool and taking their deep breaths, perhaps honing in on lessons learned during the 2007 economic crash. Others of us have been uninterruptedly working for employers who have been forced to either halt their 401(k) matching program entirely or reduce the percentage of their contribution, as has been the case with businesses throughout NE Ohio, the country, and the globe.
All of us have been rocked by this current pandemic, although it’s fair to say that some have been through the eye of the storm while others have encountered only the calm before it. Whatever your position, take the time to consider your decisions carefully before acting. Don't borrow what you don't need, but, if it makes sense to take the government up on provisions in The CARES Act, then do it! And, above all, if you're in need of guidance while navigating these unprecedented waters, by all means--recruit an expert! Your methods and strategies may shift during this challenging time, but your retirement-planning goals can and should still be achieved. An experienced retirement planning compliance firm offers specialists who will review your existing retirement plan and give you insight and direction about the plan or plans that best suit your needs, all while charting the course of new investment opportunities and utilizing the ever-evolving applicable tax and savings laws. Utilize the right resources, and we'll all get through this together!
