The COVID-19 pandemic hit hard in early 2020, and it continues to remain prevalent as we near the end of the year. 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 five big retirement mistakes below.
Mistake #1: Neglecting Your Emergency Fund
No word describes 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. While the CARES Act has temporarily waived the 10 percent penalty for early 401(k) withdrawals (up to $100,000), utilizing this option before considering other alternatives is unwise.1
The money you withdraw from a traditional IRA will still be subject to income tax come 2021. 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 upcoming 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 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 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 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 CARES Act & Other Legislative Changes
The CARES Act was passed on March 27, 2020, meaning you’ve likely heard of it by now. It’s possible you even received a stimulus check in April or May. But did you know that the CARES Act offers some significant changes for retirees and those about to retire?
As mentioned earlier, the CARES Act has waived the 10 percent tax penalty for coronavirus-related withdrawals from your 401(k) account up to $100,000.
Those who may qualify for this option include:
- Someone who has contracted the virus
- Those caring for an immediate family member who has the virus
- Anyone experiencing financial distress due to being furloughed or laid off during the pandemic
- Business owners who needed to cease operation or reduce hours
- Any additional circumstance in which the IRS deems acceptable1
In addition, required minimum distributions (RMDs) have been waived for the remainder of 2020.1 If you don’t need this money to make ends meet, leave it in the bank to accrue more interest. Plus, your tax obligation will be lower without this additional income.
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.
Click here to schedule a call with a BWC advisor today.
The information presented in this article is obtained from or based on sources believed to be reliable. BWC does not represent or warrant its accuracy or completeness and is not responsible for losses or damages arising out of errors, omissions or changes or from the use of information presented in this article. The article does not purport to contain all the information that an interested party may desire and, in fact, provides only a limited view. Information presented does not constitute an offer to sell or a solicitation of an offer to buy any security.
All investments involve risk, including loss of principal invested. Past Performance does not guarantee future performance. Individual client accounts and performance vary. BWC does not provide tax advice.
About Beirne Wealth Consulting Services, LLC – www.beirnewealth.com
Beirne Wealth Consulting Services, LLC (“BWC”) is a privately owned, SEC Registered Investment Advisor with offices in Connecticut and Pennsylvania. BWC provides independent, fee-based investment management services and customized financial planning solutions. Our institutional business provides consulting expertise to defined benefit and defined contribution plans, endowments, foundations and non-profit organizations. Our private clients include high net-worth individuals and prominent families, many of whom bring complex wealth management challenges and multigenerational planning needs. For more information, please visit www.beirnewealth.com or give us a call today at 888-231-6372.
*Registration does not imply a level of skill or training.
© 2020 Beirne Wealth Consulting Services, LLC (BWC). All rights reserved. Reproduction or Use without permission is prohibited.