The COVID-19 pandemic hit hard in early 2020, and it continues to remain prevalent as we near the end of the year. We’ve started to see businesses getting back in action here in Monmouth County and down by the Jersey Shore. However the effects of the shutdown are still being felt everywhere. Before making any sudden changes to your retirement plans, it’s important to remain rational and avoid these four retirement mistakes.
Mistake #1: Neglecting Your Emergency Fund
No word describes 2020 better than “unexpected.” If this year has taught us anything, it’s that having an emergency fund safe and ready to go is extremely important. If your income has been affected by COVID-19, it may have been a struggle over the last few months to figure out monthly expenses. 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. If we don’t learn from our past mistakes, we are doomed to repeat them. If you wished you had a bigger emergency fund earlier this year, make it a priority moving forward.
Mistake #2: Making Unnecessary Withdrawals
Withdrawing from any retirement accounts early could mean big tax penalties and less income in retirement. While the CARES Act has temporarily waived the 10% penalty for early 401(k) withdrawals (up to $100,000), utilizing this option before considering other alternatives is unwise.
The money you withdraw from a traditional IRA will still be subject to income tax come 2021. On top of the taxes, you’re also taking money away from your future self and your own retirement. It’s important to have a plan to make up for that loss of retirement income down the road. If you’re struggling to cover your expenses during the pandemic, talk to your financial planner about other options you may want to take first. We would be happy to speak with you!
Mistake #3: Making Emotionally-Driven Investment Decisions
As we talked about last week, take the emotions out of investing. We are constantly bombarded with news about the pandemic and the election. From social media posts to advertisements and news outlets, there’s no escaping the headlines.
After absorbing info day in and day out, it’s nearly impossible to not let it affect your decisions about money. Should you drain your portfolio and stuff it under the mattress? 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. 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 thanks to COVID-19 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. Reevaluate what your spending has been like over the past several months. 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 savings this year could grow significantly over the coming years.
If the COVID-19 pandemic has created some cause for concern when it comes to your retirement, don’t hesitate to reach out to us! If you don’t have a financial planner by your side to guide you into retirement, we would be happy to speak with you. Click here to schedule an initial meeting. There is no cost or obligation.