Retirement Plan Disrupted by COVID-19? Here’s What to Do Next
The financial effects of the COVID-19 pandemic have been like few others in modern times, triggering widespread layoffs and stock market losses of historic proportions.
Workers nearing their retirement are among the hardest hit by these events, as individuals in this group may be faced with one of two scenarios: They may be experiencing a job loss that causes them to consider retirement earlier than they’d planned, and at a time when their retirement savings have been negatively impacted. Or, if they were planning to retire in the near term, those plans now may be in jeopardy if they feel they’ll need to work longer to recoup the savings they’ve lost.
Both scenarios highlight the historic nature of the current situation, as well as the need for those approaching their retirement to consider how their income and savings strategies may need to shift in the days ahead to maximize and protect their investment. Here are some move-ahead strategies for individuals in both categories.
If You’re Considering Retirement Earlier than Expected
Individuals nearing retirement age who unexpectedly lose their employment as a result of the current crisis may feel impacted on two fronts: If they can’t find comparable employment, they may choose retirement; but if they begin to tap their retirement savings, they risk locking in some of the losses incurred because of the market downturn.
On the income front, review and consider all possible options to boost your supply of short-term cash without having to dip into your retirement savings.
You also may be able to find additional savings relief through provisions that are part of the 2020 CARES Act, passed by Congress in March in response to the crisis. The act waives the need to take required minimum distributions this year, which can give your retirement savings more time to recover.
The law also makes it easier and more appealing to borrow against your 401(k) account this year, which you may opt to do as a way to meet living expenses without compromising your investment. You may be able to borrow twice as much, and you may have an additional year to repay the loan.
If your employer has offered you an early retirement package, take the time to seriously consider the terms of the offer and the benefits you’ll forfeit if you don’t accept it. For example, be sure you understand what will happen to your 401(k) or other workplace retirement plan if you decline the offer and subsequently leave or change your job.
But, before you accept any retirement package, also be sure to review your retirement plan’s summary plan description and your individual benefit statement. Why? To determine how much of your employer contribution, you’re eligible to receive based on the vesting schedule. And if you roll over your retirement plan, be careful to complete the process in a way that protects your plan from being subject to withholding tax.
If Your Early Retirement Plans Have Been Delayed
Perhaps you were among those planning for an early retirement prior to the COVID-19 crisis and have experienced losses to your retirement investments. If so, you may be faced with the prospect of delaying those plans to recoup some losses.
You can either postpone your retirement and continue working, so that you can continue making contributions to your savings plan, or you can go ahead with your original plan to retire.
The option to continue working may not be what you had planned, but it could also preserve your ability to make retirement plan contributions. However, even with this option, think about preparing for the possibility of an unexpected job loss by increasing your retirement and emergency fund savings in the near term. This way, if you retire in the near future, negative impacts can be reduced.
If you opt to move ahead with your original retirement plan, you’ll need to consider taking many of the same actions those electing retirement are advised to take: namely, reducing your expenses, maximizing your sources of short-term income and working to reduce and delay retirement account withdrawals where possible.
For individuals in both camps, the key to weathering the sudden financial storm of COVID-19 is understanding your options concerning your budget, lifestyle and savings. The ideal solution is one that allows you to delay collecting Social Security benefits until you reach your full retirement age, and also allows you to avoid tapping into your 401(k) early to cover living expenses.
Connect with us by scheduling an appointment with a personal banker at your local branch location. Our professionals are also available to meet with you by telephone or email, to provide the support you need to navigate this unprecedented time.