COVID-19 has made it difficult to make plans this year. Major events have been canceled or postponed, many are uncertain about their employment stability, and we have no idea when things will go back to “normal.” What does this mean for planning your financial future. Should you still save for retirement during this unprecedented time? As a non profit credit counseling agency, ACCC explains what you should (and shouldn’t) be doing with your retirement savings right now.
To save for retirement can be hard during a financial crisis.
Can you still save for retirement right now?
The first question you should ask yourself is if you can actually save for retirement right now. If you have been laid off, you are not able to contribute to your 401(k). However, just because you don’t have access to a 401(k) doesn’t necessarily mean you are unable to continue saving for retirement in other ways. If you have an IRA, you can still contribute to that because IRAs are not tied to an employer. Keep in mind that there is a limit to how much you can contribute. For 2020, the maximum amount you can invest in an IRA is $6,000.
The next question you should ask yourself is if you can afford to save for retirement during the pandemic. Again, if you or someone in your household has been laid off, chances are, your priority is to just afford the necessities right now. Don’t feel bad if you don’t have the money to put in your IRA at this time. Focus on being able to afford rent, groceries, medicine, etc. This is a temporary hardship, but you will be able to start saving again once you or your financial partner return to work.
Is now a good time to invest?
Many Americans currently lack confidence in the U.S. economy, and it’s easy to see why. With some businesses closing permanently and the only news we hear being negative, it’s hard to feel optimistic. That doesn’t mean you should just stop investing and putting money in your retirement accounts altogether though. If you’re in your 20s or 30s, take advantage of the fact that time is on your side. Even if the economy is uncertain this year, you have 30+ years’ worth of compound interest ahead of you. Missing out on that now could mean you won’t be ready for retirement when you reach retirement age. For those who are still employed and have not lost income due to COVID-19, the best thing you can do is continue investing!
Can I withdraw from my retirement accounts during COVID-19?
Yes. Many Americans who have lost their jobs and have already used up their emergency funds have been able to withdraw from their retirement accounts penalty-free. Usually, there is a 10% penalty for those who withdraw from their 401(k) before the age of 59 1/2. However, individuals affected by COVID-19 can withdraw up to $100,000, and the penalty fee will be waived.
While this is one option that is on the table, it is not something we recommend you do unless you absolutely must. Borrowing from your retirement should be a last resort option.
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