How COVID Hit A Huge Percentage of People’s Retirement, by Brad Furges

COVID 19 is a leading crisis all over the world, as it has created worldwide chaos which is going no way down even after five months. Earlier, in March, the USA government got reported the first patient of COVID 19, and at that time, President Trump was quite confident about their arrangements of coping with this menace. Those statements were mere statements, and in the aftermath of COVID 19, the USA’s people faced the biggest medical and economic emergency.

After the wall street crash in 1929, this is the severest economic recession that has wiped out the jobs of millions of people. So, in these circumstances, the government’s assistance was inevitable, and the government put forward the bailout package of $2 trillion for the people of the USA. Although this package provided people with ample relief, it was still too low to meet people’s expectations.

Meanwhile, the best thing that was appreciated all over the USA was the mainstreaming of the CARES Act, which allows people to have $1200 per month to meet their necessary expenses. Moreover, there are also many laudable features of this CARES Act, but COVID 19 will still adversely affect the people who have planned for their early retirement.

So, let us see how COVID 19 will affect the people ready to take early retirement.

How COVID 19 will Make the Early Retirement Decision Wrong?

Along with the Stimulus payments that people are getting under the provision of CARES Act, the abandonment on the restrictions of using money from peoples’ TSP saving accounts and 401k plans have also been uplifted. For the time being, people are considering it quite an admirable gesture from the government. Still, these abandonments on the restrictions of using money from saving accounts will put the long term benefit of people at stake.

Earlier, the government did not allow 401k plan holders and TSP plan holders to use money from their savings accounts. But still, if someone violates the rules and regulations, he has to pay 10% of the amount he withdrew from his savings account. But, now there is no such restriction, and people may efficiently utilize money from their savings accounts up to $100,000.

Moreover, in these crises, people are overwhelmingly using money from their savings accounts without thinking that this spending would deteriorate their retired life.

So, those who are ready for early retirement must be prepared to face uncertainties in their financial affairs.

Therefore, people consider uplifting these restrictions a good step, but indirectly this act will make your retired life tough enough. But, bear in mind, the government put this suggestion forward for the convenience of people, but some people are not taking it seriously and spending money on the things which are not that important for them.

What is the problem with Taking an early Retirement Plan Withdrawal?

If you are holding a 401k plan or TSP saving account and are in desperate need of money, you might find that using money from these savings accounts is the best solution to the problem. But, this will be the most stupid choice that someone could make.

Using money from these accounts might provide you relief for the time being, but it will be your loss in the longer term.

Now, you might think, how is it a loss for you?

Of course, this is a significant disadvantage due to specific reasons. When you withdraw money from your savings account, the spirit of accumulating that money at one place gets vanished. On the other hand, once you withdraw money from your savings account, you seal it with losses that will come to in the coming years of your life.

Secondly, once you withdraw money from your savings account, you will rush to withdraw money from your savings account in case of a small need. Although you will run the affairs of today’s life very well, you have to face its consequences later in your retired life because you tapped into these plans for accumulating money that could serve you later in your retirement days.

Thirdly, if you still have 15 years’ service to service, but have planned to take early retirement, how much money will you accumulate?

You will sum up quite a low income just because of the haste that you created for having early retirement. You have to leave a lot of money on the table that could have been yours in case of an early departure,’ but you advertently missed that amount. Let us make it clear with an example;

How does Early Withdraw Affect your Savings?

For example, you have an IRA account, and you come across the need for $20,000… If your investment in your IRA account offers you a 7% average return on your investment, you will end up with the total amount of $85,000 approximately. You could yourself analyze whether it was the amount you were taking pains for?

Of course, you will never be satisfied with this amount because, at the time of tapping this saving plan, you thought of accumulating a significant amount. Still, with this amount, you will never be able to meet the lifestyle you thought. So, you must be careful while taking money from your savings account, as it costs you very slowly.

How Can Someone Avoid Withdrawing money from its Saving Account?

When you enter any saving plan, keep in mind that you only have to put money in it, and you will not touch it unless you reach your retirement age. But, of course, you might come across the situation when you need money, but do not have it, so what is to be done in this situation?

Whatever, the circumstances you have to avoid using money from your savings account. And for the emergency needs, you need to abide by the following instruction;

#1. Keep another Personal Saving Account:

Although the USA’s government facilitated their people by providing them with relief in the form of Stimulus payments, there are many countries where people are dying because they cannot meet their basic requirements. Their governments do not have enough resources to feed their people.

Luckily, the USA’s people are far from such a situation, but you should have a separate saving that you can utilize in the emergency room. This separate saving will serve you when you have a medical emergency or have to get your accidental car repaired.

So, if you have money for such a time, you need not hitting your savings account that you tapped in for securing your retired life.

#2. Borrow money from someone:

Keep in mind, once you have tapped in your savings account, it should be the last resort to explore; otherwise, you will have nothing in your hand at the end of the term.

Now, if you have come across a medical emergency and do not have any separate savings, there appears no other option other than exploring your savings account. But still, you do not have to do this.

You may ask your family members or friends for that amount, and hopefully, someone of them will help you out in that time of crisis. This is how you could avoid disturbing your savings account.

These are the two best options you can explore to avoid disturbing your savings account.

Final Words:

According to the recent study, COVID 19 will adversely affect people’s retirement up to 22%. In these times of crisis, when the government has uplifted every kind of restriction from using money from your 401k plan’s saving accounts and TSP saving accounts, people are too open to use the money that they were accumulating for their retirement for their meager needs.

This is how people are inadvertently sacrificing their more significant long term benefit over a short term benefit. The best idea of coping with this situation is to have a contingency plan that should involve the mainstreaming of one more personal savings account that you could use in the time of need.

Moreover, you may also borrow money from someone in the time of need. So, no doubt, you have an option to use money from the savings account, but please keep it as a last resort.

Other brad furges Articles

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What Next to Manage Your TSP: Buy, Sell, or Sit Tight? By: Brad Furges

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