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 four retirement mistakes.
#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 looking for places to cut back, but that doesn’t mean adding to your emergency fund should be the first thing to go. From a health emergency to car repairs, you never know what surprises may come your way.
#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 may be unwise.1 The money you withdraw from a traditional IRA will still be subject to income tax come 2021. Consider other options that may not have as large an impact at the time of withdrawal that you may want to access first.
#3: Making Emotionally Driven Investment Decisions
Before making any important investment decisions, surrounding yourself with the relevant information and resources is essential. After absorbing dramatic headlines surrounding Covid-19, the upcoming election, staggering unemployment rates and predictions of the rise and fall of the stock market, it is nearly impossible to not let the noise affect your investment decision-making. Have a plan and stick to it. Together with your financial advisor, you can focus on your goals and objectives and less on the world around you as you navigate your financial journey.
#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.
You may be spending less on gas or commuter passes, travel and vacation, eating out, gyms and more. Reevaluate what your spending has been 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.
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.