Has COVID-19 Derailed Your Retirement Plan?
The COVID-19 pandemic could cause many people to experience adverse financial effects not only now but in the future by derailing their retirement plans. You may find your own retirement plans changed because you are unable to contribute to your retirement accounts due to a pay cut or lost employment or because your employer froze matches to your 401(k) plan. Perhaps you had to pull money out of your retirement savings because you got sick or a spouse or dependent was diagnosed with COVID-19.
If you’re worried about the effects of COVID-19 on your retirement plan, you can take steps to get back on course. Examples include:
Endure Market Volatility
While the sudden shift into bear market territory early in the coronavirus pandemic may have been frightening, the market has largely recovered. Volatility may resume, either because of the virus or due to other unforeseen events, but the important takeaway is to avoid overreacting to market swings.
Instead of panic selling, the best course of action is often to stay put. If you sold investments when the market dropped, consider reviewing your investment strategy with your financial advisor to make sure you’re comfortable with the amount of investment risk reflected in your portfolio.
That comfort level is vital to enduring short-term market variability and helping you stay focused on your long-term goals.
Refinance Your Mortgage
A bright side to lower interest rates resulting from the pandemic could be that you have an opportunity to save money by refinancing your mortgage. Much depends on factors such as the initial interest rate of your mortgage and your credit score. But if you do refinance, you can put the savings from your reduced mortgage toward retirement.
As a related strategy, you could stretch out your payments by refinancing to a longer mortgage term. Although your term would be longer, your monthly payments would be lower, giving you more cash flow so you can contribute to your retirement plan accounts.
Talk to your financial advisor about the refinancing strategy that would be right for you in light of your overall financial situation and goals.
Plan to Work Part-Time in Retirement
Although you may have had a retirement date or lifestyle in mind, COVID-19 may have changed your vision. For example, if the shutdowns forced your business to close temporarily or permanently, you will probably want to review your retirement plan. Options may include pushing back the date you retire or working in retirement, such as by consulting.
Perhaps the pandemic has given you a glimpse of what your retirement experience will be like. If you didn’t know what to do with your extra leisure time at home, then your response could signal that you will want to work, at least part-time, in retirement.
Working can provide the opportunity to make up for lost contributions to your retirement plan. You might find that you want to consult in your industry part-time after your current career comes to a close. Or you might have discovered a hobby during your time at home in the pandemic—a hobby you can turn into side income in retirement.
Talk with a Financial Advisor
One-quarter of Americans have dipped, or plan to dip, into their retirement savings due to COVID-19, according to a Bankrate survey. Before you take a coronavirus-related distribution, you might consider talking with a financial advisor.
A financial advisor can assess your entire financial situation, determine whether you’re still on track for retirement, and if not, advise on how to get back on track. A fiduciary, fee-only financial advisor, such as our Roseville, CA wealth management firm, receives no commissions and must put your best interests first.
Schedule a complimentary, 15-minute call with a fee-only, fiduciary financial advisor today to discuss your personal situation.
This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice.
Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor serving the greater Sacramento area with an office in Roseville, CA. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country's leading professional association of fee-only financial advisors.