Retirement planning is a daunting process, and with COVID-19 playing havoc on the stock market, causing 401(k) and IRA balances to plunge, it doesn’t make the process any easier. Due to the coronavirus outbreak, experts predict that another recession might be around the corner.
If you want the coronavirus situation to have a minimal impact on your retirement plans, here are some thoughts and ideas, depending upon where you are in your retirement schedule:
You are already retired.
Allow the income planning and generation process to run its course. If you have planned your retirement well and if you have a strategy for retirement income in place, keep the strategy. Your income strategy is designed to withstand the market fluctuations.
However, if you don’t have an income strategy or not sure where you are heading, it’s a good time to talk to your financial advisor.
You plan to retire in the next 10 years.
By now, you probably have assets arranged for future income. If you haven’t, please think twice before selling any of your assets, especially stocks. It’s not a good time. However, at this point, use the time to review the retirement planning you have already done.
You plan to retire in more than 10 years.
Take this as an opportunity to keep doing what you are doing – hopefully, making regular contributions to your retirement accounts. If you continue to make regular contributions, you are actually using dollar cost averaging to your advantage. Your contribution today will buy more shares than it did a month ago. Ride the curve back up.
Here are a few tips that will help you navigate these uncertain times:
1. Flexibility is the key.
The recent stock market crash may have changed your thougts about your retirement plan. If you were hoping to retire this year or next year, you might have to rethink your decision until the market recovers. However, it’s too early to tell when the full recovery might happen, but you need to be flexible. This situation may be an opportunity in disguise. For example, delaying your retirement may give you another year to boost your benefit and lock in a higher payment for life.
2. Think twice about selling your stocks.
At a time like this, it may be tempting to sell your stocks. Unloading your stocks when they’re down is a sure way of locking in losses. While it may be heart-wrenching to see the numbers dropping, you need to keep calm and not make rash decisions.
With the uncertainties that are prevailing in the world today, mapping out your retirement can be a stressful situation. The best thing you could do right now is to not panic and be flexible to make changes as the situation demands. Be mindful of the fact that this situation, too, shall pass. And when the market recovers, you’ll be in a stronger position to retire than before.
3. Keep cash reserves.
The recent market crash has taught us how important it is to have cash reserves at all times. Ideally, if you’re close to your retirement, you should have cash in your savings account, large enough to cover a year of your living expenses. Apart from that, you should ideally have emergency savings to cover your unexpected expenses.
4. Keep your future in focus.
Currently, the stock market is in pretty bad shape. But, it has a strong history of recovering. So, don’t panic or keep checking your IRA or 401(k) balance almost every day. Rather, focus on excelling at your job and plan the things you can control and things you’ll do once you retire. And don’t forget to continue funding your IRA or 401(k) retirement accounts.
Due to the market downturns, now is also a good time to invest on the cheap while sticking with your scheduled retirement plan contributions. So, when the situation becomes normal, you are in a better place financially.
Whether you are 25, 45, or 65, you should have a retirement plan that’s designed to withstand market volatility. If you don’t have a plan, the current market scenario has taught us that the time to get serious about retirement plans is NOW. Call (866) 639-0066 for retirement advice during coronavirus pandemic now!
Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning company based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning, and over the last ten years has turned his focus to self-directed ira accounts and alternative investments. If you need help and guidance with traditional or alternative investments, call him today (866) 639-0066.