How has the COVID Pandemic Changed Retirement Planning?

Mike Gann Financial Planning, Retirement Planning

The COVID pandemic has changed nearly every aspect of society. It’s changed the way we work, the way we learn, and even the ways in which we travel and dine. The pandemic also disrupted the economy and the financial markets, triggering record unemployment and bringing the longest bull market in history to an end.

Given the financial volatility we have seen during the pandemic, you might think that Americans are also changing their retirement strategies. However, a new survey from Forbes and YouGov suggests that’s not the case.

The survey reached out to 9,675 people to learn more about their retirement planning. Many of the questions and answers focused on three main areas:

CARES Act Distributions

As the COVID pandemic hit the economy, the government passed the CARES Act to provide assistance to those who were impacted. One piece of the CARES Act allows 401(k) and IRA account holders to withdraw up to $100,000 without paying an early distribution penalty. They can also pay the taxes over a three-year period.1

While the pandemic may have created unemployment and other financial emergencies, few Americans are tapping into their retirement savings. According to the survey, only 4% of respondents took a 401(k) hardship withdrawal and 5% took a hardship withdrawal from an IRA.2

Most of those who took a withdrawal were younger in age. Among those ages 25 to 34, 8% reported taking a withdrawal. However, among those 55% and older, only 2% said they took a withdrawal from a retirement account.2

Working Longer

While few respondents said they had tapped into their retirement savings, 11% said they planned to work longer before retiring. Those ages 45 to 54 were most likely to give this response.2

The decision to work longer may be due to market volatility in 2020. However, it also could be due to a surprising reason – employers suspending their 401(k) matching contributions. Nearly 4% of respondents said their employers had suspended matching contributions, but that number could increase.2 In the years following the 2008 financial crisis, nearly 20% of employers with more than 1,000 employees suspended their matching contributions.3

If you’re concerned about volatility or if your employer has suspended contributions, consider meeting with a financial professional. Working longer is an option, but it’s not your only option. A financial professional can help you implement the strategy that’s right for your goals and needs.

Asset Allocation Changes

In the survey, only 5% of respondents said they had made a significant change to their asset allocation and only 4% said they had lowered their 401(k) or IRA contributions. In fact, 72% of respondents said they hadn’t made any changes to their retirement strategy at all.2

While sticking to a long-term strategy is generally a good idea, there may be times when a change is warranted. If you haven’t reviewed your strategy recently, now may be a good time to do so.

Let’s talk about your strategy and whether it’s still right for your goals. Contact us today at Advantage Retirement Services. We can analyze your strategy and help you make adjustments where needed. Let’s connect today and start the conversation.

1https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers

2https://www.forbes.com/sites/advisor/2020/05/11/how-covid-19-has-changed-retirement-planning/#7f6080b6830d

3https://www.forbes.com/sites/advisor/2020/04/10/covid-19-employers-suspending-401k-matching-contributions/#30e0b7cd285f

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