7.14.20

Coronavirus shrank your retirement savings—what’s next?

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Moves to overcome financial setbacks caused by the pandemic.

Since the start of the COVID-19 pandemic, volatility in the stock market has left a lot of people wondering about what’s next for retirement savings that have taken a hit. On top of market swings, no-penalty early withdrawals further reduced many people’s savings. While there is no one-size-fits-all solution for financial setbacks like these, the following are three moves to consider to protect your retirement savings—whether you’re still working or already retired.

Continue contributing to your retirement plan

The bad news is that many stocks have lost value. The good news is that it’s an opportune time for 401(k) and IRA fund managers to buy low. By continuing to save now, you can benefit from low stock prices. This move allows you to use the strategy of dollar-cost averaging, which helps avoid the pitfalls of trying to time the market (to buy stocks at low points and sell them at their peak). Plus, you’ll continue to gain from your employer’s matching contributions.

There is an exception to continuing retirement savings, however. If your emergency fund is nearly or completely depleted, it may be more beneficial for you to rebuild your emergency savings. This doesn’t have to be an all-or-nothing situation, though. You could just reduce your retirement savings for the period it takes to rebuild your emergency fund. When your emergency fund is replenished, go back to your regular retirement savings plan.

Suspend Required Minimum Distributions (RMDs)

Under the federal CARES Act passed earlier this year, many people who would have been forced to take minimum distributions from their retirement accounts because they reached age 70½ got a reprieve. The Act changed the age for RMDs to 72. Delaying distributions allows more time for retirees’ accounts to regain value after suffering losses this year.

Rethink your plans

Two factors still largely under your control are your age at retirement and your withdrawal rate. Is working longer at your current job an option? Are you interested in a different kind of work until you transition to full retirement? How might you reduce your expenses? Is it time to downsize your home? Rethink your plans with an eye toward what you might gain rather than focusing on losses.

When re-evaluating retirement plans, keep in mind that dealing with a financial setback involves emotions like grief and shock. Cut yourself some slack and try these tips for financial resilience from Forbes to navigate the way forward.

As you consider these three moves for overcoming a setback in your retirement savings, you should consult with a financial advisor or a tax expert to see how your particular situation has been affected.

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