The COVID-19 pandemic hit hard in early 2020, and it continues to remain top-of-mind in 2021. Whether you’ve just recently retired, or fast approaching retirement age, it’s likely the virus has brought about some financial uncertainty regarding your readiness for retirement. Before making any sudden investment changes, it’s important to remain rational and avoid these five big retirement mistakes below.
Mistake #1: Neglecting Your Emergency Fund
No word described 2020 better than “unprecedented.” In fact, I think we can retire that word from our vocabulary after the pandemic ends. What do you think?
It should come as no surprise that, as financial planners, helping others prepare for the unexpected events in life sits at the top of our list. As you might expect, it can be tempting to forego or forget important financial habits - like padding your emergency fund - when times get tough. If your income has been affected by COVID-19, you may be struggling to make ends meet for the time being.
But that doesn’t mean adding to your emergency fund should be the first thing to go. A little preparation now can go a long way when the unexpected does hit. From a health emergency to car repairs, you never know what surprises may come your way in retirement.
Mistake #2: Making Unnecessary Withdrawals
Withdrawing from any retirement accounts early could mean big tax penalties and less income in retirement.
Additionally, the money you withdraw from a traditional IRA will still be subject to income tax. And to avoid robbing your future retirement, you’ll want to develop a plan to replace that lost income in the coming years. If you’re struggling to cover your expenses amidst the pandemic, talk to your financial advisor about other options you may want to take first. Look into what relief programs your state or local government offers, tap into your emergency fund if necessary and reevaluate your budget.
Mistake #3: Making Emotionally-Driven Investment Decisions
Nobody can go a day without hearing the word “coronavirus.” From social media posts to advertisements and news outlets, there’s no escaping the pandemic. COVID-19 aside, other big news stories are hard to avoid as well - political infighting, the staggering rates of unemployment claims, the stock market rising and falling, etc.
After absorbing info day in and day out, it’s nearly impossible to not let it affect your decisions about money. Fight the urge to begin active investing strategies on your own. Most people need to fight the urge to become a DIY portfolio manager. Instead, focus on what you can control.
Should you consider a more conservative strategy for the future? Do you need to look at rebalancing assets amidst this market volatility? Working with an investment advisor can bring an objective, scientific and education-based perspective to the question of what to do with your assets. Working together, you can focus less on the world around you and more on your individual goals as you head into retirement.
Mistake #4: Forgetting to Reassess Your Current Budget
Have things changed since you last made your monthly budget? Maybe you used to commute to work, and now you’re working remotely. Or you used to spend every Friday at happy hour with friends, now you enjoy a quiet evening at home. It’s very likely that your daily habits, and what you spend money on, have been affected by the pandemic.
In many cases, this could be good news. You’re spending less on gas or commuter passes, travel and vacation, eating out, gyms and more. As part of your retirement planning, reevaluate what your spending has been like over the past several months and determine if there are any opportunities to put more toward your retirement savings. Depending on your timeline towards retirement, an extra couple of thousand in your 401(k) or IRA accounts this year could grow significantly during your retirement years..
Mistake #5: Ignoring Legislative Changes
The CARES Act offered relief for families and businesses impacted financially by the pandemic. While the original benefits outlined in this legislation have ended, some programs have been extended into 2021 - including the Pandemic Unemployment Assistance (PUA) program and Paycheck Protection Program (PPP).
With a new administration, you’ll want to keep a close eye on what additional federal assistance may be coming soon. Taking advantage of COVID-related financial assistance could be crucial to financial plan adjustments as you near or continue retirement.
If the pandemic has created some cause for concern when it comes to your retirement, don’t hesitate to reach out to us for financial advice! We work with retirees and pre-retirees to develop retirement strategies and determine if things need to be adjusted.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.