In addition to wreaking havoc on the economy as a whole, the Covid-19 pandemic has significant repercussions for how we now conduct financial planning, especially how we approach saving for retirement.
The pandemic has shown how the lack of short and long term financial planning is a pressing issue across all levels of income. While the last year has brought these topics to the forefront, their importance is likely to persist post-pandemic as well.
Let’s take a closer look at how the pandemic has highlighted the need for financial planning in terms of retirement and emergency savings, as well as strategies you can implement for better protection.
A Pew Research Survey conducted in April 2020, revealed that just 23% of lower-income households felt that they had enough emergency savings to get them through 3 months of unemployment. It was also found that 52% of middle-income households didn’t feel that they had enough savings to cover 3 months of living expenses and 25% of upper-income households also didn’t feel they had 3 months worth of reserves.
The CARES Act was signed into law in March in an effort to help those feeling the economic impact of the pandemic. This allowed individuals to take up to $100,000 from their IRAs and 401(k)s without the additional 10% penalty that normally comes with early withdrawals. However, taxes on the withdrawn funds still apply.
While this act helped many, it’s still suboptimal having to withdraw from a retirement fund. Withdrawn funds can’t benefit from market appreciation, meaning you miss out on future earnings. This can take a big bite out of your overall retirement savings, making it the biggest downfall of an early withdrawal. This is why it’s so crucial to have an emergency savings fund separate from long-term 401(k) assets.
- Revisit Your Current Strategy
If you were laid off or furloughed due to the pandemic, you may have reduced or stopped saving for retirement. While that’s an understandable decision, it’s important that it doesn’t become permanent. As soon as you feel financially comfortable, you’ll want to ramp those savings back up, potentially even higher than before.
If you weren’t laid off, you should also consider boosting your retirement savings. We still never know what will happen to the market in the future and one of the best things you can do now is prepare.
- Focus on Protection
No matter where you’re at in your journey to retirement, it’s still smart to look for ways to better protect your savings. There is a common misconception that pulling funds out of the market will deflect from further losses, but that is not the case. Knee-jerk reactions can actually lock in your losses and give you less time to recuperate your savings. The market has historically always bounced back. Consider researching financial products that can help provide you with a level of protection. Working with a financial professional can help you determine your current risk exposure and if a protection product is right four your specific situation.
- Revisit Your Retirement Timeline
If you put a pause on your retirement savings, you may be looking for ways to close the gap left by the absence of new contributions. Though not ideal, one way to accomplish this is by dealing your retirement date to give yourself more time to build up savings. Extending your working years not only gives you more time to bulk up your retirement savings, but it can also help you delay taking Social Security. The longer you wait to take your Social Security, the bigger the monthly check will be.
- Consider Contacting Financial Professionals
One of the ways to ensure you’re making the right decisions with your finances is by getting professional advice. This can help take a lot of stress out of financial planning and give you peace of mind knowing you’re doing what’s best.
Many are still feeling the impacts of the pandemic almost a year later, but that doesn’t mean recovery isn’t possible. At CKS Summit Group we design, build, and manage custom retirement portfolios that are fully capable of simultaneously generating stable growth, increasing income, and preservation of principal throughout a client’s lifetime, with only limited downside market risk. If you’re in need of financial advice, contact us today!