We are more than a year into the COVID-19 pandemic, and it’s still in the front of everyone’s mind. This is a crucial time to avoid certain retirement mistakes. If you’re recently retired, or only a few years away from retiring, we have a few thoughts for you.
Financial uncertainty near retirement isn’t ideal for anyone, so do your best to avoid these 5 retirement mistakes in 2021.
Mistake #1: Neglecting Your Emergency Fund
2020 in a nutshell can be summed up as “unprecedented” and “unexpected”. It was impossible to see the events of 2020 ahead of time, so it’s no surprise that a lot of people were left flat-footed financially. Emergency funds that you thought were adequate were proven otherwise, and financial hardship set in for a lot of people.
When times get tough, it can be easy to forget to replenish your emergency fund, but those important financial habits need to remain in place. If your income has been affected by COVID-19, you may be struggling to make ends meet for the time being. But that doesn’t mean adding to your emergency fund should be the first thing to go. Preparing for emergencies now a little at a time can go a long way in the future.
Mistake #2: Making Unnecessary Withdrawals
Withdrawing from any retirement accounts early could mean big tax penalties and less income in retirement.
When you’re getting close to retirement, the best course of action is to set up a retirement income strategy. Know ahead of time where your monthly income is going to come from, and which accounts/sources you will be drawing from first. This will help you avoid unnecessary taxes or penalties along the way. If you’re struggling to cover your expenses amidst the pandemic, talk to your financial advisor about other options you may want to take first. Look into what relief programs your state or local government offers, tap into your emergency fund if necessary and reevaluate your budget.
Mistake #3: Making Emotionally-Driven Investment Decisions
Nobody can go a day without hearing the word “coronavirus.” From social media posts to advertisements and news outlets, there’s no escaping the pandemic.
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
Plenty of things in your financial life can be “set it and forget it”. However, your budget isn’t one of those things. Your budget is a fluid, ever-changing thing that needs to be addressed quite frequently. Especially following a year like 2020 where things may have been significantly out of whack from where you projected, revisiting your budget could be worth it.
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 actually be good news. Reevaluate what your spending has been like over the past several months and 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.
Mistake #5: Ignoring Legislative Changes
The CARES Act offered relief for families and businesses impacted financially by the pandemic. While the original benefits outlined in this legislation have ended, some programs have been extended into 2021 – including the Pandemic Unemployment Assitance (PUA) program and Paycheck Protection Program (PPP).
With a new administration, you’ll want to keep a close eye on what additional federal assistance may be coming soon. Taking advantage of COVID-related financial assistance could be crucial to correcting course as you near or continue retirement.
If the pandemic has created some cause for concern when it comes to your retirement, don’t hesitate to reach out to us! We work with retirees and pre-retirees to develop retirement strategies and determine if things need to be adjusted.
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