The coronavirus pandemic is a global health crisis, but like your favorite television sitcom, it has created spinoffs. Unlike your favorite sitcom, these issues are extremely serious and are affecting people all over the country. From mental health issues to financial troubles, the pandemic had extended beyond a public health crisis.
The pandemic has all but shut down many parts of the U.S. economy, causing more than 40 million people to file for unemployment benefits since it began. Economic turmoil has caused many Americans to wonder, are my retirement savings safe?
Ladders spoke with Brittney Castro, the Certified Financial Planner at Mint, an online tool for money management from Intuit, to find out how you can protect your retirement savings during the pandemic and put yourself in the best position for financial recovery.
How to put yourself in the best position to recover financially after the pandemic
1. Pivot your priorities: When it comes to personal finance, having set priorities is a must, but you also must be able to pivot those priorities during unexpected times such as the one we are in now.
“If your employer is no longer matching your 401(k) contributions, you may want to reevaluate your spending to accommodate for the change,” Castro said.
Castro recommends that you continue contributing a portion of your paycheck to retirement but reevaluate the amount you are contributing.
“It may be more important right now to redistribute funds towards high-priority payments, like high-interest debt or building emergency savings,” Castro said.
If your financial situation has changed because of the coronavirus pandemic, Castro recommends reevaluating all of your finances.
“Look at your budget. What can you cut back on? Where will you supply the shortage of income?” Castro recommends asking yourself these questions when reevaluating your finances. “Whether that’s taking from your cash account or maybe leveraging debt knowing that you’ll pay it off when things get better…it’s really relative to who the person is and what their scenario is.”
Your financial plan obviously depends on your specific financial situation. If you are still secure in your job and have a steady cash flow, Castro recommends that you continue on the financial plan that you have created for yourself, like saving for retirement and building a cash cushion.
2. Assess all options: Castro recommends accessing your retirement funds only when you have exhausted all other options. Tapping into your retirement funds not only impacts progress you have made towards long-term retirement savings but also you will still be responsible to owe taxes on what you withdraw.
Those who have lost their jobs or have been furloughed should try other options first, like asking for forbearance on payments from credit card companies or service providers.
3. Seek support if needed: If you have assessed all options and have no choice but to dip into your retirement savings, there is important information that you should know about the CARES Act.
Through the CARES Act, those impacted by COVID-19 can take out up to $100,000 from their 401(k)s without being hit with the typical 10% penalty. The usual rule is that if you withdraw money from your 401(k) before age 59 and a half, you must pay a penalty as well as taxes. While you still have to pay the taxes on the money you withdraw, you can now spread out the taxes owed over three years.
“That’s for somebody who might be in a scenario where they’ve depleted their cash and they don’t want to leverage credit, or they don’t have the ability to leverage credit, to get them through some sort of financial hardship,” Castro said.
This new rule offers a bit of a safety net as you decide what your next career and financial steps are.
“If that is something that you’re going to do, just make sure you’re prepared to pay those taxes,” Castro said. “Make sure you’re prepared to rerun your retirement projection in the hopes that eventually you’ll increase your contributions to make up for the money that you might have taken during this time.”
4. Focus on what you can control: Focusing on what you can control is the number one piece of personal finance advice that experts have been giving during the coronavirus pandemic. Experts dole out this advice because there is no use in breaking down when the stock market plummets or unemployment numbers rise. You can’t control either of those things, and worrying won’t get you anywhere.
Instead, take a look at your finances and address your personal situation.
“It’s really important to make financial decisions from an unbiased, nonemotional place. Fear can wreak havoc on our ability to make the best long-term decisions, so it’s important to reassess your financial choices when you have a clear head,” Castro said. “Make sure you’re looking at your spending honestly to reassess where you can potentially make cuts in order to stock away for the longer-term or build out your emergency savings plan.”
Castro recommends stepping back and taking a look at your whole financial situation from a “bigger picture” angle. Ask yourself, what can I do right now?
“That usually helps people with the fear aspect because a lot of people go into fear when they’re not in their money, meaning that they’re not active,” Castro said.
Castro explained that many people don’t know how much they are spending, they don’t know the state of their cash account, and they don’t know what’s happening with their investments. So mostly, people are fearing the unknown of their financial situation.
“When you get back in there and reevaluate and become more active, it actually helps ease that anxiety because at least now you’re clear on what’s happening,” Castro said. “Most of life we can’t control, but with your finances specifically that always helps when you have those moments of extra panic or fear. Just come back to your own situation and create a new game plan.”
Jennifer Fabiano is an SEO reporter at Ladders.