The COVID-19 pandemic has adversely affected many Americans’ physical, psychological, and social well-being due to decreased economic stability and uncertainty surrounding job security.
Whether you are still employed, unemployed, planning to retire this year, or planning on retiring in the future, here are a few tips to keep in mind while navigating the current climate.
Revisit your budget
The future is very uncertain. No one is sure how long the pandemic will last or what the final economic toll will be. Now is a good time to take note of where your finances are at. Assess your spending, debt, and savings and observe what has changed and where you could make adjustments. You may need to prioritize your bills and cut some expenses for the time being.
According to Stanford economist Nicholas Bloom, as of June 2020, almost twice as many employees were working from home as in the office. Companies including Twitter and Facebook even plan to make working from home the new normal, as reported by CNN. This means that most people probably aren’t spending what they once did on transportation. If your commute has changed, maybe consider allocating that money toward a retirement or emergency fund instead.
Create an emergency fund
Once you’ve reviewed your budget, set aside an emergency fund that could cover three to six months of expenses. Right now, it’s more important than ever that you have money set aside for unexpected expenses.
An emergency fund should be used to keep up with bills in the event that your employment changes or to cover medical bills if you get sick. Having an emergency fund is crucial to avoid having to tap into retirement accounts or sell investments.
If you are about to retire, or have recently retired, you may want to have closer to two or three years’ worth of expenses set aside for your emergency fund.
Review your asset allocation
If you’re nearing retirement or are simply trying to safeguard what you have, you should shift into a more conservative portfolio and make sure your money is allocated the way you want, including stocks, bonds, and cash.
Learn everything you can about investments
Whether you’re afraid of investing in the stock market or simply don’t know where to start, take the time to learn everything you can about investing and saving for retirement.
When you know what your investing options are and how they work, you’ll be empowered to save for retirement and make the right financial decisions.
Diversify your investments
A diversified investment is a portfolio of assets that earn the highest return for the least risk. Typically, this portfolio has a mixture of stocks, fixed income, and commodities.
Studies show that women tend to invest more conservatively than men and shy away from stocks, which have the highest investment return over time. To feel more comfortable investing, it helps to diversify your investment portfolio.
An investment professional can help you choose the right funds, usually those that consistently outperform other funds in their category over a long period of time.
Maintain your retirement plan
If you are able to, continue to regularly contribute to your retirement accounts. Maintaining this habit will also help you avoid spending the funds elsewhere.
If you're out of work, preserving your retirement accounts should be a high priority.
To help with expenses, take advantage of unemployment insurance and assistance. You may also be able to negotiate with your creditors to reduce, postpone, or spread out payments.
If you have to draw from your savings, start with your emergency fund and leave your retirement accounts alone for as long as possible.
Don’t start your Social Security benefits
If you get laid off or furloughed and are 62 or older, you’re eligible to start your Social Security benefits but will want to review all options before making this decision..
Social Security benefits offer triple protection against common retirement risks: living a long time, market and economic downturns, and inflation. Additionally, the longer you wait, the higher your benefits and protection will be.
Social Security benefits should be considered as an important piece of your retirement plan. Your retirement savings, insurance options, and any additional cash flow or savings will play an integral part in your decision of when to draw Social Security benefits.
Plan to retire later
Some workers were unexpectedly forced into retirement this year due to job elimination or health concerns. However, if you plan on voluntarily retiring this year, you may want to reconsider.
The market is very volatile right now, meaning that your retirement account may not look the same as it did at the beginning of the year. It may be smart to work for a few more years to give the market and your portfolio time to stabilize.
If you have had a difficult time contributing to your retirement account, or had to tap into your account due to financial hardship, you should probably work a few more years to continue saving.
This may not be great news for some, but this delay in retirement shouldn’t be as long as the one many workers experienced in the credit crisis of 2008-09. If you planned on retiring at 65, maybe consider waiting until you’re 67.
It’s your future
If you’ve been working with a financial advisor, you should already have a retirement plan that can withstand this type of market volatility.
If not, then it’s time to start taking your retirement planning seriously, no matter how old you are. Find an advisor you can trust to design a balanced investment strategy and guide you to a place of financial confidence.