Opportunities Could Exist for Those Who Are Employed
If you or your spouse have not been laid off or furloughed from your job(s), you may be in the best shape to ride out this crisis. Unless your salaries have been temporarily cut, you are in the best position for staying the course with your retirement savings because you still have the same income coming in. With your regular income coming in, you are not forced to dip into your retirement savings.
One glitch that may be affecting your retirement savings is if you are in a 401(k) or another employer-sponsored retirement plan, and your employer has temporarily suspended its match. If this has happened to you, there is no reason to stop making your own contributions.
Are you now working from home instead of commuting to the office? Believe it or not, you may actually be benefiting economically from working at home. Work-related expenses like commuting costs, eating lunch out, right down to dry-cleaning bills, have significantly been reduced right about now. With the money you are saving by working from home, now may be the time to consider increasing your IRA contributions. For 2020, if you are:
- 50 years old or older, the maximum contribution is $7,000 per person
- Under 50 years old, the maximum contribution is $6,000 per person
What if You Are Unemployed?
If you are unemployed because of COVID-19, you are in a much different position than you would be if you were still working. You should do what you can to prolong dipping into your retirement savings for as long as you can. Unemployment insurance may cushion some of the blow, but it may not be enough to cover your bills fully. Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, you may be eligible for programs or be able to negotiate payment arrangements with your mortgage lender and credit card companies.
Before tapping into retirement savings, your first place to draw first should be your emergency fund. This is something that most financial planners recommend that you have. You should also consider prioritizing your bills and trimming expenses where you can. While this might seem a little drastic, remember that this is only temporary. However, one expense that you definitely should not cut is your health insurance. If you are suddenly left without health insurance because you are unemployed, you may be eligible for assistance through the government’s Health Insurance Marketplace.
The CARES Act has loosened the rules on early withdrawals and loans from 401(k). However, both still have their individual consequences. A loan will need to be prepaid in five years or less, and a withdrawal will trigger a tax consequence. If you must tap your savings, consider starting with nonretirement accounts first. A result of tapping into your retirement accounts now may be the real possibility that you may have to put off retiring for a few more years to replenish savings or to collect a higher Social Security benefit.
If COVID-19 has you rethinking your retirement strategy, it is time to speak with a qualified financial advisor like Beah. BD Financial Concepts is always ready to discuss your options.