The COVID-19 pandemic hit hard in early 2020, and it continues to remain top-of-mind in 2021. Whether you’ve just recently retired, or it’s coming up in the next few years, it’s likely the virus has brought about some financial uncertainty regarding your readiness for retirement.
Before making any sudden changes, it’s important to remain rational and avoid these seven big retirement mistakes below.
Mistake #1: Neglecting Your Emergency Fund
No word described 2020 better than “unexpected.” Therefore, it should come as no surprise that preparing for the unexpected sits at the top of our list. When times get tough, it can be tempting to forego or forget important financial habits — like padding your emergency fund.
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. A little preparation now can go a long way when the unexpected does hit. From a health emergency to car repairs, you never know what surprises may come your way in retirement.
Mistake #2: Making Unnecessary Withdrawals
Withdrawing from any retirement accounts early could mean big tax penalties and less income in retirement.
Additionally, the money you withdraw from a traditional IRA, 457, 403b, or 401k will still be subject to income tax. And to avoid robbing your future retirement, you’ll want to develop a plan to replace that lost income in the coming years.
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. COVID-19 aside, other big news stories are hard to avoid as well - the recent election, the staggering rates of unemployment claims, the stock market rising and falling, etc.
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 a 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 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 likely 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 and determine if there are any opportunities to put more toward your retirement savings.
Depending on how far away from retirement you are, 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 Assistance (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.
Mistake #6: You Don’t Have a Will or Estate Plan
Ben Franklin famously said, “In this world nothing can be said to be certain, except death and taxes.” Just like you plan for how taxes will impact your retirement plan, you need to consider how your passing could affect your family.
Especially as a first-responder, you put your life on the line every day. While the hope is that you’ll always come home safe, the best way to support your family is by planning for every possibility.
Make sure you have established a will and estate plan for in the event of your death. This is a great time to get information for any accounts together and have a conversation about your wishes.
Mistake #7: Not Connecting With Your Financial Advisor
Even if you feel you’re able to separate emotions from logic to make sound retirement decisions, an advisor can help ease the stress and put your financial woes at bay.
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 first-responder retirees and pre-retirees to develop retirement strategies and determine if your plan needs to be adjusted.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.