Common Retirement Planning Mistakes You Need to Avoid during the Pandemic, by Todd Carmack

It’s a year unlike any other, and it’s causing mistakes unlike any other with retirement planning. With the global pandemic, mass unemployment, and so much uncertainty, there’s panic in the air. What’s more, the market is unsteady, and this has led to fear for investors. However, despite all this, there are some common mistakes that you need to avoid. 

Pausing Automatic Investments  

If you’re financially comfortable, we highly recommend continuing with automatic investments. Those who have a percentage of their paycheck withheld for a retirement account should try to keep this going. In the grand scheme of things, this is hopefully just a small blip. If you can continue saving for retirement, you’ll be in a better position in the long term. What’s more, it stops you from pausing investments to spend the money on non-essential purchases. 

 

Forgetting Your Budget 

 

During these challenging times, your expenses will have undoubtedly changed, and maybe your income too. Therefore, you need to reconsider your budget. For example, those working from home instead of commuting an hour per day are saving gas or public transport money. If this is the case, can you put a percentage of this money towards retirement instead? 

We know that others have had their work hours reduced or have been completely laid off. Again, the starting point is a review of your budget. With a careful budget, you might spot opportunities to reduce expenditures rather than pulling from retirement savings.  

Sitting on Cash  

When times get hard, a good number of people will sell stocks and then sit on the cash until everything calms down. At the time, it feels as though you’re preventing losses and securing your savings temporarily. In reality, you can do more damage by reverting everything to cash. With inflation, your cash will have less purchasing power with every day that passes.  

Another problem with this strategy is knowing when to return to the stock market. Return too late, and you will miss out on gains (this can be just as damaging as experiencing losses). Remember, you’re saving for retirement rather than a quick money boost. The further away retirement is, the more time you have to recover and enjoy good times once again. 

Taking from a 401(k) 

Under different circumstances, there would be a 10% early withdrawal penalty for anybody who dipped into their 401(k) account before age 59 ½. Thanks to the CARES Act, this penalty has been removed if the COVID-19 pandemic caused the withdrawal, and participants can take up to $100,000. Some will rejoice at this help, but early withdrawals aren’t a universally magical solution. As time goes on, more stories are emerging of people taking distributions even when they don’t meet the coronavirus criteria or even need the money at all. 

Even if you think you need help, we advise speaking with a financial professional first. Despite the lack of a penalty, you will still pay tax on distributions. Also, taking money now will mean having to save more later in life if you want to reach your retirement goals. 

Making a Knee-Jerk Reaction to Retire 

If you were around the corner from retirement in January, the sad fact is that your retirement fund probably looks much weaker now. With this, retirement is a risk with the market still so volatile. By working a little longer, you allow the market time to stabilize, and you can retire while confident of meeting your goals financially. The order of highs and lows of the market doesn’t matter when saving, but you don’t want to start withdrawing during a low. 

Lacking an Emergency Fund 

Without an emergency fund tucked away, every unexpected expense is taken out of earnings or retirement funds (or a credit card!). We’ve seen many people turning to their credit card and then their 401(k) when they realize the credit card is only a short-term solution. According to experts, you should have a minimum of three months of living expenses saved for unexpected costs. 

Forgetting Your Retirement Plan 

Just because you didn’t have a retirement plan before COVID-19, this doesn’t mean you can’t introduce one now. For those who had a financial plan, stick to it and make revisions wherever necessary – don’t just abandon it. Don’t forget that a financial advisor will provide tailored advice for you, your family, and your goals if you need help. 

Contact Information:
Email: [email protected]
Phone: 6232511574

Bio:
I grew up in Dubuque, Iowa, where I learned the concepts of hard work and the value of a dollar. I spent years in Boy Scouts and achieved the honor of Eagle Scout. I graduated from Iowa State University and moved to Chicago and spent a few years managing restaurants. I then started working in financial services and insurance helping families prepare for the high cost of college for their children. After spending years in the insurance industry, I moved to Arizona and started working with Federal Employees offing education and options on their benefits. I became a Financial Advisor / Fiduciary to further help people properly plan for the future. I enjoy cooking and traveling in my free time.

Disclosure:
Investment advisory services are offered through BWM Advisory, LLC (BWM). BWM is registered as an Investment Advisor located in Scottsdale, Arizona, and only conducts business in states where it is properly licensed, notice filed, or is excluded from notice filing requirements. BWM does not accept or take responsibility for acting on time-sensitive instructions sent by email or other electronic means. Content shared or published through this medium is only intended for an audience in the States the Advisor is licensed in. If you are not the intended recipient, you are hereby notified that any dissemination, distribution, or copy of this transmission is strictly prohibited. If you receive this communication in error, please immediately notify the sender. The information included should not be considered investment advice. There are risks involved with investing which may include market fluctuation and possible loss of principal value. Carefully consider the risks and possible consequences involved prior to making an investment decision.

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