7 Retirement Planning Mistakes to Avoid during Coronavirus
Covid-19 has caused many disruptions in our lives. You may feel overwhelmed while working from home, checking the stock market, and disinfecting everything in sight. However, despite all of the new changes and unknowns, now is not the time to lose sight of your financial goals.
Here are seven retirement planning mistakes to avoid during Coronavirus:
Mistake #1: Not Revisiting your Budget
The pandemic has affected everyone in one way or another. Take a step back to assess how your daily life has changed and how it will affect your monthly budget. Does working from home impact your travel expenses? How about your A/C, heat, or electricity expenses? Are you using contactless delivery more often? Are you facing a tough financial situation such as job loss, salary cut, or an increase in medical expenses?
- Determine which expenses increased or decreased and recalculate your budget. For example, your travel expenses may have decreased from $200 to $100 a month, giving you more room to save for retirement. If your financial situation has taken a hit (it happens to the best of us), then rebalance to make sure that your retirement investing isn’t shelved. It’s hard to make that commitment, but it’s important for the future.
Mistake #2: Withdrawing from your IRA or Taking Social Security Too Soon
In times of economic uncertainty and financial struggles, it may be tempting to claim your Social Security or withdraw from your IRA. However, the longer you wait to collect, the better. Social Security is age based and the age you decide to retire at will affect your benefits. If you retire at the earliest retirement age of 62, you will receive the lowest tier of benefits. The government provides an extra 8% every year you wait to claim benefits, until you reach 70 years old. Age also makes a difference with your IRA. Withdrawing from a traditional IRA before turning 59 ½ years old will incur a 10% penalty tax in addition to paying income tax. Also, any money you take out from your IRA will be more difficult to replace due to contribution limits.
- Avoid withdrawing early from your IRA and claiming Social Security too soon. If you can afford to postpone, then you will receive more benefits in the long run. Speak to a financial professional for guidance based on your personal financial situation.
Mistake #3: Living Without an Emergency Fund
The one lesson we can learn from 2020 is to expect the unexpected. Having a backup plan and savings make it easier to keep up with your expenses if an emergency occurs. You may have to retire at an earlier age due to health or injury, or you may find yourself out of a job later in your career. Plan for the worst, so you have extra funds available if needed.
- Consider using a Roth IRA as your emergency savings account. You can access your Roth IRA contributions at any time and for any reason and take them out tax-free.
Mistake #4: Rushing Important Investment Decisions
The volatile stock market may cause fear of a crash or concern about missing out on gains. Having a strong investment strategy is critical to avoid this stress. Talk to a financial planner or investment advisor so you can make educated decisions about your assets and fulfill your retirement goals.
- Diversify your portfolio to minimize the impact of the ebbs and flows of the stock market. Investing in a variety of assets from traditional stocks and bonds to alternatives like real estate will provide a cushion against the volatility of the stock market and prevent you from making rash decisions.
Mistake #5: Wasting Your Stimulus Check
The stimulus check was issued to relieve those who are struggling financially due to the pandemic. However, if you have not undergone any drastic financial changes in your life, consider how it can best be used.
- If possible, skip buying the “best” electronic device or “must have” item and contribute your stimulus check into your retirement fund. This way, it will build over time and provide greater returns in the long run.
Mistake #6: Postponing Saving
If you can afford to pay for basic necessities, do not postpone funding your retirement even in times of uncertainty. It is very difficult to start saving again once you stop and challenging to make up for the contributions missed.
- Continue maxing out the contribution limit for your retirement fund. This will give you a sense of normalcy during this uncertain time and allow your future self to be less stressed.
Mistake #7: Not Having a Retirement Plan or Strategy
Many people are passive and leave their retirement planning up to fate. However, having a plan is the first step to a richer retirement. Throughout the retirement planning process, you will discover what works for you and what needs to change. Understanding the process and having a strategy will keep you on track to a relaxing retirement.
- Take charge of your retirement plan by contacting a financial planner or IRA specialist. This will give you the knowledge you need to take charge of your finances.