How To Handle Your Retirement Savings During COVID-19
By now I’m sure that if you have a retirement account(s) you have seen it drop, by no small amount either. You might be thinking “I’m not going to be able to retire because I keep losing money!”
Don’t fret, as it’s all going to be okay. One of the cardinal rules about investing to remember is that you don’t “lose” any money until you sell.
An economy runs well when people spend money and, well, people aren’t spending as much money right now (except on toilet paper apparently!). Because of this decrease in spending, the economy has taken a hit. A lot of this can also be attributed to fear; not enough savings, job security, unexpected expenses, etc.
So, what does that mean for your retirement accounts?
If you are 10 or more years away from retirement, you have at least 10 years for the market to both recover back to where it was AND continue to grow. This is NOT the time to make any adjustments to your retirement investments.
What if your job is still steady, you aren’t spending as much, and you have extra funds each month? Should you put more into your retirement? Based on the other cardinal rule of investing of “buy low, sell high” this is a great time to buy, right?
It is, but ONLY if you have a fully funded emergency savings (which is 3-6 months of your current living expenses saved in cash). The realty of the world right now is that no one knows how long this is going to last. And no one knows the full ripple effects on the economy. Make sure you have your emergency savings in cash first, because once any money is in retirement you cannot touch it until you are at least 59 ½ years old.
What if you have an old retirement account that you want to move to either your new employer retirement plan or roll into an IRA?
It is best to wait on this as well. About 9 out of 10 times the investment firm holding your old retirement account will actually sell out of everything you own and send the cash to your new investment firm. Now is not the time to sell. However, if the investment firm where you are moving the funds from are going to move them in kind (meaning no selling) then you can continue with your plan of rolling over your old retirement account(s).
What if retirement is just around the corner and you don’t have more than 10 years to wait?
Don’t panic either. Remember, retirement age is typically around 62-65 years old. The money you have saved is meant to last you for the rest of your life. So part of that money you aren’t touching for another 10 or more years! Don’t make any rash decisions now based on a market that is down now, but will correct itself in due time (usually the longest a recession lasts is 18 months). If you need to sell some of your retirement funds for cash, try to focus on the investments where you will have the least amount of loss (the difference of the price you bought the fund at and what it’s worth now). Also, don’t forget that you can write a loss in the stock market off on your taxes (up to $3,000 for most individuals).
One last mention about retirement in these crazy times… if you have funds already in a retirement account, but they are just sitting in cash, even though you don’t have a fully funded emergency savings, you should invest those funds if you have 10+ years until retirement. You have the time for the market to not only go back up again, but also continue to grow. The general rule of thumb is that if retirement is 10 or more years away then you should have a split of about 90% stocks and 10% bonds.
Your retirement investments are down, but the good news here is that you’ll 100% be okay.
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