COVID-19 is concerning not just from a health perspective, but also from a financial standpoint. The pandemic has put the livelihoods of millions of people in jeopardy and thrown the financial markets and retirement savings into turmoil.
While it’s natural for your employees to get discouraged at a time like this, the moves they make—or don’t make—in the coming weeks and months could impact their long-term financial health. Although much of what happens with the stock market is out of our control, sharing some proactive steps with your employees can help ensure they are doing as much as possible to prepare for retirement.
Don’t make withdrawals to retirement savings unless it is necessary. Even in times of crisis, there are better options than tapping into retirement savings, such as dipping into an emergency fund or, if possible, budget cutting. Taking an early withdrawal from a retirement account diminishes balances and future earning potential.
Christian Brothers Retirement Planning Services does not offer financial advice but here are some strategies from Forbes magazine and the Internal Revenue Service (IRS) that you can share with your employees that may help to minimize the economic impact of COVID-19: Don’t make withdrawals to retirement savings unless it is necessary. Even in times of crisis, there are better options than tapping into retirement savings, such as dipping into an emergency fund or, if possible, budget cutting. Taking an early withdrawal from a retirement account diminishes balances and future earning potential.
CARES Act. The $2.2 trillion coronavirus relief package passed in late March includes provisions that allow eligible individuals to withdraw up to $100,000 from their retirement accounts without incurring a penalty if they are under age 59 ½ years old. Federal taxes for this type of distribution can be spread over three tax years. Also, the distribution can be repaid to the Plan within three years to avoid taxation. Information on the new law, called the CARES Act, can be found in both the myRetirement section of the Christian Brothers Services and Vanguard websites. The IRS eligibility requirements for coronavirus-related distributions is based upon an individual:
- (1) who is diagnosed with COVID-19;
- (2) whose spouse or dependent is diagnosed with COVID-19; or
- (3) who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of childcare due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19, or other factors as determined by the U.S. Treasury Secretary.
Diversify portfolio going forward. All investors have been subject to wild fluctuations in the markets in the last few months. Employees should think about their tolerance for risk and consider how they want their funds to be allocated. Adjusting retirement age. While this may not be the most exciting prospect, employees who adjust their retirement age may be able to recoup some of the losses suffered during the pandemic. Workers also can delay when they start receiving Social Security benefits. Depending on what their savings currently look like and how close they are to their expected retirement age, postponing retirement could be a viable option.
Don’t make panic-based decisions. As a general rule, it is not a good idea to make financial decisions in panic mode. Actions such as selling off stock that might have recovered or pulling money from a retirement account that is not replaced can cause long-term consequences that can negatively affect a retirement plan.
Tune out the noise. These days it can be hard to ignore news about the stock market, but logging in and checking investment account balances multiple times a day will not help investments do any better. Remind employees that the
more they check their investments, the more likely they are to panic and sell at just the wrong time. A week or two of not looking at investments might do them a world of good.
Keep Planning and Saving
Today’s situation does not mean that the markets will not recover and that employees shouldn’t still save for their retirement. Historically, the financial markets have rebounded from even the most serious downturns. Remember, retirement saving is for the long term. Even with the current uncertainties, the rules for planning for employee retirement still hold fast:
- Start saving, keep saving and stick to goals
- Know your retirement needs
- Contribute to the retirement savings plan
- If at all possible, don’t touch retirement savings
- Find out about Social Security benefits
- Ask your financial advisor questions
The most important thing employees can do to plan for retirement is to contribute to their retirement plan. The maximum annual contribution is $19,500 in 2020, ranging up to $26,000 for those above the age of 50. Because of our current situation, the IRS also has extended its deadline for making Individual Retirement Account (IRA) and Health Savings Account (HSA) contributions for the 2019 tax year to July 15, 2020.
Help when you need it
There is a wide variety of retirement planning information available on the myRetirement section of the Christian Brothers Services website, including a Guide to Retirement video and retirement planning flyers. Visit Vanguard’s website for COVID-19-related information, including CARES Act FAQs and articles, videos and webinars with insights on the coronavirus and market conditions.