If you’ve been saving for retirement, you’ve likely gotten used to watching your account balance steadily rise along with the stock market – that is, until the coronavirus hit. The spread of COVID-19 from China across the world has sent markets on a roller coaster ride. If you’ve bothered to check your retirement account balance, you’ve probably seen it on the same wild ride.
So what do you do if you can’t stomach the ups and downs? It’s not like you can simply strap in your retirement account and tell it to enjoy the ride. Or can you? Take a look at what you can do to protect your retirement account as the coronavirus impacts the market.
Last updated: March 23, 2020
Hearing that the stock market has tumbled into a bear market can sound scary. It’s a period when stock values drop at least 20% from a recent high. Realize, though, that bear markets happen somewhat regularly. And they don’t usually last long.
On average, bear markets last about a year, according to investment management company Invesco. Over the past 60 years, the market has bounced back after every bear market and reached new highs. Keep this in mind if you start to feel panicked about the market.
Don’t Check Your Retirement Account Daily
Resist the urge to log on to your retirement account regularly to check your balance. It will do more harm than good, says Dan Keady, chief financial planning strategist at TIAA. “In market downturns, we’ve seen big downs and big ups,” he said. “If you’re putting yourself on this emotional roller coaster, it doesn’t make sense to increase your anxiety.”
Educate Yourself on Investing
Think of the recent market volatility as a reminder to brush up on your knowledge about investing. “Use it as an opportunity to learn,” said Dana Anspach, founder of financial planning firm Sensible Money and author of “Control Your Retirement Destiny.”
She recommends reading “The Behavior Gap” by Carl Richards or “The Four Pillars of Investing” by William Bernstein. Or you could learn about investing in uncertain times by listening to podcasts such as Money Tree Investing or Stacking Benjamins.
If you are checking your retirement or investment accounts and are seeing your account balance drop, don’t be tempted to sell your stocks. It might feel like the safe thing to do, but remember that those losses are on paper only. “Don’t throw money into cash and cement your loss,” Keady said.
In other words, if you sell while your stocks are down in value, you will actually lose money. Hang on to your shares and give them a chance to bounce back.
But Keep Cash for Emergencies
Ideally, you should have enough cash in a savings or money market account to cover three to six months’ worth of expenses. “If people have put aside money that’s going to cover near-term cash needs, that should ease their minds considerably,” Keady said.
If you don’t already have an emergency fund, start building one so you don’t have to raid your retirement savings or rely on debt to get you through a tough time. You might actually have more cash in your budget you can set aside for emergencies if you’re spending has been curtailed by the coronavirus.
Get Clear on Your Savings Goals
If you have multiple savings and investing accounts, make sure you understand what the goal of each account is. “Focus on what the plan was for that money” and write it down, Keady said. “It makes it easier to stay the course.”
For example, if you have a 401(k), write that it’s for retirement and how many years it will be before you need the money in the account. If you’re saving for shorter-term goals, such as a down payment on a car or house, then that money should be in cash in a savings account.
Focus on the Long Term
When it comes to your retirement account, remember that you’re saving for the long term. “You have to look at the potential outcomes over five years, not over a few weeks or months,” Anspach said.
So stay the course you’re on rather than make a drastic move during this time of stress. Anspach said there’s a quote she saw that sums up what retirement savers should do now: “I’ve learned it’s best not to get off the roller coaster in the middle of the ride. Let it come to a stop.”
Don’t Try To Time the Market
You might be thinking you should switch your investments from stocks to bonds or even a money market account during this period of volatility then switch back once stocks stop falling. The problem with that strategy is timing.
“The only way it works out is if you can buy back at lower price than when you exited,” Anspach said. Most people don’t do that because they end up waiting until the market has recovered and stock prices are on the rise. As a result, they end up losing more money than if they had stayed in stocks.
Keep Contributing To Your 401(k)
One of the worst things retirement savers did during the 2008 financial crisis was they stopped contributing to their 401(k)s or other retirement accounts, Anspach said. Not only should you continue to contribute to your retirement account, but also you should consider increasing your contribution, she said.
If you invest more while the market is down, you’ll get more bang for your buck. “This is a buying opportunity of a lifetime,” Anspach said.
The recent stock market volatility is a good reminder to have a diversified portfolio, which means having a variety of stocks (from small and large companies as well as international firms) as well as bonds and cash. This can help reduce your risk.
If you participate in a workplace retirement plan, see if that plan offers model portfolios of the investments available to you through the plan, Keady said. You could create your own portfolio based on one of the models. You also could opt for a target-date fund that will automatically adjust your stock and bond holdings as you near retirement.
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30 Things You Shouldn’t Hold Off Until Retirement
1. Create a Post-Retirement Budget
How much you spend in retirement might differ dramatically from what you spent during your working years. That's why pre-retirees need to create a post-retirement budget, said Emily Guy Birken, personal finance expert and author of "Choose Your Retirement."
"To do this, you will need to determine your retirement income, including how much you expect to withdraw from your investments and what you expect to receive from Social Security or a pension," she said. "Going into retirement without a post-retirement budget is a good way to overspend in your early years."
Once you have a budget set, try living on your post-retirement budget for the year leading up to retirement, said Birken. Doing so "will help you acclimate to the changes" and "psychologically transition to your post-career life," she said. It'll also give you time to figure out if you're even ready for retirement or not so you can tweak your plan before the big day comes.
3. Avoid Lifestyle Inflation
The years leading up to retirement are when your income will likely be at its highest.
"Keep your budget the same in spite of salary raises," said Pauline Paquin, owner and founder of personal finance blog Reach Financial Independence. "That will boost your retirement nest egg and allow you to live on a fraction of your last income in retirement."
4. Reduce Living Expenses
"Start streamlining your lifestyle now in preparation for retirement," said Carla Dearing, founder and CEO of online financial planning service SUM180. "Take a close look at your monthly expenses and identify those items you can do without. This gradual approach will let you significantly cut your monthly expenses without feeling the shock of adjustment."
5. Check Your Savings Numbers
"Although this sounds like a no-brainer, it makes sense to double, triple and quadruple-check [your retirement numbers] before you abandon the safety net of a regular paycheck," said Robert Steen, enterprise advice director for retirement at USAA. "We recommend having roughly 10 to 12 times your final salary saved up before you start your retirement."
6. Identify Income Sources
Review and list guaranteed income sources — like Social Security, pensions and existing annuities — as well as income-generating investments such as IRAs, 401ks, taxable investment accounts and savings accounts, to get ready for retirement.
"If you have any doubts about your ability to cover any of your retirement expenses, or legacy goals, get some expert help," said Steen. "A financial advisor can provide additional perspective, advice and solutions to help you reach your retirement goals."
7. Plan Your Second Act
Some retirees pursue a passion project, while others seek a little extra income on the side to make ends meet. Dearing recommends using your last year of employment to plan for your post-retirement career.
"Build the skills, resources and professional network you'll need to earn additional income after you leave your current job," she said.
8. Coordinate Timing With Your Partner
"It is fun to think of retiring together and immediately embarking on your elaborate travel plans, but if you stagger your retirement, more of your retirement assets will stay invested," said Dearing. "You'll also have the continued benefits from one of your employers; the medical coverage alone might have a significant impact."
9. Boost Retirement Savings
"It can be difficult for many people to max out their retirement accounts throughout their working lives. But during your last year, strive to sock away as much as possible," said David Hryck, personal finance expert and partner with New York City tax law firm Reed Smith. Your last working year is the final opportunity to put away as much as possible and pad your retirement savings account.
10. Take Advantage of Catch-Up Provisions
"The government encourages saving in the final years leading up to retirement by allowing catch-up contributions to retirement accounts," said Daniel Zajac, partner with Simone Zajac Wealth Management Group. For people 50 years of age and older, the IRS allows a pre-tax deferral of $24,500 into an employer-sponsored retirement plan.
IRA participants age 50 and older who meet income requirements can also contribute an extra $1,000 per year. "I've never heard a retiree complain that they saved too much for retirement," Zajac said.
11. Consolidate Financial Accounts
It's easier to keep track of your investment income if your accounts are in as few places as possible. Hryck suggests consolidating financial accounts to simplify record-keeping and achieve easier cash flow tracking as you get ready for retirement.
However, he warns individuals to "consider the consequences from a tax perspective prior to making any moves, such as selling stocks or mutual funds."
12. Reduce Your Portfolio’s Risk Profile
"The worst time to take a negative in your portfolio is right before retirement," said Tom Till, financial professional and owner of APPS Financial Group, which helps families and individuals with financial planning. "It will directly affect how much you can live on during retirement."
Contact a financial planner or take an online survey to determine your risk tolerance and adjust your portfolio accordingly. "I have seen people have to work an extra two to four years because they failed to take this step when close to retirement," Till said.
13. Create a Distribution Strategy
The accumulation and distribution of assets require two entirely different strategies and, particularly for those with a long retirement horizon, there will likely be a need for simultaneous accumulation and distribution plans.
"It is key to work with someone who is knowledgeable about distribution in this phase of life," said Till. Distribute too much or earn too little, and you risk not having enough capital to make it through retirement.
"Credit card debt can carry an interest rate of up to 20 percent," said Till. "Student loan debt never goes away, and the government can choose to withhold your Social Security benefits if you have outstanding student loans."
15. Relocate for Retirement
If you're planning to retire elsewhere, Benjamin Sullivan, a certified financial planner with Palisades Hudson Financial Group in Scarsdale, N.Y., suggests moving or buying a second home while still employed.
"While many retirees can qualify for a mortgage, it's much easier to prove you have the income to support a mortgage if you make the move while still earning a full salary," he said.
16. Work Extra Hours
"Some pensions and severance payments are calculated based on the income you earn in your last few working years before retirement," said Sullivan. "Therefore, working additional hours or taking on additional projects in your final working years can give you extra income now and in the future."
In other words, a little extra hard work now can create a substantial payoff once you transition out of the workforce.
"Lack of adequate insurance coverage can lead to high unexpected costs that might cause you to go into debt," said Harrine Freeman, financial expert and CEO of H.E. Freeman Enterprises. The majority of bankruptcies result from an unexpected, expensive medical concern. Long-term care insurance can help defray the high costs associated with an unforeseen ailment or potentially needing long-term care.
18. Refinance or Pay Off Your Mortgage
"The thing you absolutely must do is straighten out your mortgage financing before retiring because you might not qualify with your reduced income after retirement," said Casey Fleming, author of "The Loan Guide: How to Get the Best Possible Mortgage." "If you don't do this, you might find yourself with too high an interest rate that you can't get rid of, too high a payment for your new, lower income or plenty of equity but no way to access it readily."
19. Declutter Your House and Mind
"Clearing our mental clutter is an essential step to getting ready for the next chapter in our lives, which often includes getting rid of stuff," said Catherine Allen, co-author of "The Retirement Boom: An All-Inclusive Guide to Money, Life and Health in Your Next Chapter."
Not only are these items unlikely to be worth as much as you think, but the odds are also good that your family members won't hang on to them.
"Our kids and grandkids are minimalists and don't want to save Aunt Hattie's china or Grandpa Paul's stamp collection," she said.
20. Know How Your Income Affects Your Taxes
"When an individual's 'combined income' — defined as half your Social Security benefit, plus your other adjusted gross income — exceeds $25,000 as a single person, your benefit becomes taxable," said personal finance writer JoeTaxpayer. "Simply put, the tax burden on $30,000 of Social Security benefits and $20,000 from retirement funds will be far less than if the two were reversed."
"For each year you delay benefits past age 62, you gain a 6 percent to 8 percent increase in lifetime annual benefits. That adds up quickly," Steen said. You can check your personal Social Security benefits at SSA.gov.
22. Engage in Your Interests and Hobbies
Many pre-retirees forget to account for how they'll spend their time once they're no longer headed to the office each day. "Chart out your time both at the macro-level (annual vacations, trips, etc.) and at the daily level — what will you do immediately after waking up?" said Paula Pant, personal finance blogger and founder of Afford Anything.
If you fail to plan ahead for retirement hobbies, "you'll develop restlessness, spend too much money out of boredom and potentially jump back into the workforce due to a lack of anything else to do," she said.
23. Apply for a Reduced Real Property Tax Program
"Many of the elderly lose their homes due to the inability to pay their real property taxes and in some cases, the amount owed is less than $1,000," said Freeman. "Owing taxes during retirement will reduce your monthly cash flow and might put you in a financial bind that could take months to recover from."
"Home repairs can range from hundreds to thousands of dollars per repair, and might lead to usage of credit cards if you cannot afford to pay for the repairs on your fixed income," said Freeman. An up-to-date home warranty can cover many unexpected repair costs, which can help keep a retiree from busting the budget.
25. Build an Ultra-Emergency Savings Account
"The standard advice for emergency savings accounts is to have six to 12 months' worth of living expenses. However, if you plan to no longer have earned income, increase your emergency savings to 18 to 24 months' worth," said David Auten and John Schneider of The Debt Free Guys blog.
"For the 12 months leading into retirement, cut your expenses and put all additional savings into your ultra-emergency savings account," they added. That way, it can help keep invested assets secure, if and when an unexpected financial emergency occurs.
26. Review Family Financial Obligations
An emotional drive to help loved ones financially can erode a nest egg.
"Helping out family and friends is great, but don't do it at the expense of your retirement savings," said Steen. "Outliving your resources is a real risk. So, even if you think you have the cash available, seek professional advice before making a decision."
27. Review Life Insurance Coverage
When you retire, you might lose the group life insurance coverage offered through your employer.
If you "still have financial obligations such as dependent children, a mortgage or a car loan, consider buying a private life insurance policy if you're entering retirement with debt, or if you would lose benefits if you or your partner dies," said Steen.
28. Consider Healthcare Coverage
"Knowing exactly what to expect from your healthcare benefits is vital for retirees," said Birken. Fidelity has calculated that a 65-year-old retiring couple will need $275,000 for healthcare over the span of their retirement.
The first step she recommends is a meeting with your human resources department to find out if you're one of the lucky few who will receive employer-covered healthcare during retirement. If not, find out when your health benefits will lapse in retirement and, if you're under age 65 when you retire, you'll need to do to sign up for COBRA.
29. Get Organized
Organization doesn't just make your life easier in retirement; it also ensures loved ones can easily find key documents in case of an emergency and if you're unable to access them yourself.
"Compile critical information in a safe place, such as a fire safe," said Allen. "Keep paper copies of important documents, in case you lose the electronic."
You should also make a list of all your online accounts and passwords, such as your bank and investment accounts, so your family can easily find this information when the time comes.
30. Check Your Emotional Readiness
"Just because 'everyone' retires at age 65 doesn't mean you have to do the same," said Steen. Before leaving your career, ask yourself if you're retiring because it's something you look forward to or because it's something you expected to do at a particular age milestone.
If you're constantly asking yourself, "Am I ready to retire?" and never pulling the trigger, you might want to hold off on quitting your day job.
"If you are very unsure of the decision to retire, and have a choice, then don't do it," said Steen. "Working longer, perhaps at something new and different, can help you maintain yourself, both financially and mentally."
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Use the Rule of 100
If you’re not sure how much of your portfolio to have invested in equities versus fixed-income assets such as bonds, use the rule of 100. “Take your age and subtract it from 100,” said Brandon Hayes, a vice president with oXYGen Financial. “This should tell you the percent of your portfolio that should be in equities and the rest in fixed income.”
Even if you don’t follow the rule closely and want to keep more of your portfolio invested in stocks as you age, it’s a good idea to reduce your exposure to equities as you get close to retirement.
Front Load Your 401(k)
You could take advantage of the big drop in the markets to load up on stocks while prices are low. “Don’t space your 401(k) or IRA contributions over the rest of 2020,” Hayes said. “If you have excess cash to invest, try to put away 100% of your paycheck and use your excess cash to pay your bills in a swap.”
Don’t Raid Your 401(k)
It can be tempting to turn to your retirement account as a source of funds if the going gets tough. But your retirement savings will take a huge hit.
For starters, the money you take out won’t have an opportunity to grow when the stock market rebounds. You’ll have to pay a 10% penalty on 401(k) and IRA withdrawals made before age 59 ½, plus pay income taxes on the withdrawal amount. If you take a loan from your 401(k) rather than a withdrawal, you won’t have to pay taxes. But you will have to repay the loan within five years — or immediately if you leave your job.
Be careful not to overspend and rack up debt as you stockpile food and supplies to get through the spread of the coronavirus. You’ll be left with less room in your budget to continue saving for retirement.
Take Advantage of Reduced Spending To Boost Savings
On the flip side, if you’re spending less now that you can’t go out or travel as a result of social distancing recommendations, you could boost the amount you’re saving. If you do have debt, focus on paying that down. Otherwise, give your emergency fund a boost and increase your retirement savings rate.
If you’re really worried about the impact that market volatility from the coronavirus will have on your retirement savings, consider buying fixed annuities, Keady said. These insurance products require a lump-sum investment. But they provide a fixed rate of return over a certain period of time regardless of how the market performs and a guaranteed stream of income in retirement.
Get a Guaranteed Return
If you’re too scared to invest now or boost retirement contributions, focus on paying down your mortgage. “Even if you have a low mortgage rate of 3% or 4%, paying off that mortgage can not only give you better peace of mind for retirement, but it is still potentially the best guaranteed return you’ll get on your money,” Hayes said.
If you were planning on retiring soon, consider delaying retirement to protect your savings from the coronavirus fallout. “For people in their 60s who haven’t retired, often just waiting one or two years can really change the numbers around,” Keady said.
Your retirement account will have more time to bounce back from market losses and grow if you work longer. And if you delay collecting Social Security benefits past your full retirement age, you’ll get a bigger monthly benefit check.
Shift Some Savings to Cash If You’re Near Retirement
Everyone should have an emergency fund. But that fund should be bigger if you’re close to retirement, especially given the current market volatility. “If you are nearing retirement, it is a good idea to store one year of cash for all of your expenses so you can let the rest of your investments grow and recover,” Hayes said.
Be Strategic With Retirement Account Withdrawals
If you’re already retired, be careful about the investments you sell now to generate income. Don’t sell stocks or stock funds that have fallen in value lately, Anspach said. Instead, sell bonds and bond funds and draw from cash reserves while the stock market is volatile.
Live on Less in Retirement
If you’re in retirement and your savings account balance has taken a hit, you might need to reduce the amount you’re withdrawing for income. If you don’t make adjustments to your withdrawals, “that could put you in a risk situation of potentially running out of money,” Keady said. Look for ways to temporarily reduce spending so you can live on less.
Put Things in Perspective
It’s hard not to feel panicked when you hear news reports about the Dow Jones Industrial Average dropping thousands of points in a day. Your emotional response is to sell before the losses get worse.
But ask yourself whether you’d act the same with other buying or selling decisions. “People don’t run out and sell their home when the market is down,” Anspach said. “People don’t apply the same mentality to stock investments.”
Get Professional Help
Rather than try to make decisions about your retirement savings on your own, get the help of a financial professional. Check with your employer to see if your workplace retirement plan offers advisor services. Or find a fee-only financial planner through the National Association of Personal Financial Advisors at NAPFA.org or the Garrett Planning Network.
Know That the U.S. Economy Is Resilient
You’ve likely heard that the stock market isn’t the economy. Unfortunately, the ripple effects of the coronavirus will impact the U.S. economy. Keep in mind, though, that the economy was doing well before the coronavirus outbreak, Keady said. If there is a downturn or recession, the economy should rebound, he said.
Don’t let negative thoughts about the market and your investments spiral out of control over the long term, Keady said. Otherwise, you’ll make short-term decisions you will regret. Stay positive and keep contributing to your retirement account. When things settle down, you will see a return on your investments, Keady said.
You can maximize your tax refund in several ways — from paying off high-interest debt to investing in a business or saving for retirement. One or more of these options could be the perfect fit for you.
The Schedule K-1 is slightly different depending on whether it comes from a trust, partnership or S corporation. Find out how to use this tax form to accurately report your information on your tax return.