Planning for Retirement in the COVID-19 Age

This article was originally published within the Savannah Morning News, found HERE.

Major economic events give us a compelling reason to revisit our retirement plans, evaluate household spending and take a hard look at our long-term goals.

So, with the Coronavirus shaking up the marketplace and creating uncertainty in both the job and stock markets, how can we plan for things like retirement?

It starts by bringing everything back to the basics. Here are a few important tips to keep in mind:

Start with saving. Recent events have highlighted the most fundamental component to a financial plan – an emergency savings. Without it, unexpected short-term events continually run the risk of disrupting our long-term goals. While a credit card may be a convenient place to turn in order to cover an unanticipated expense, that bill will eventually come due and you don’t want to be forced to take a 401(k) loan to cover it. Your goal should be to have money to cover three to six months of expenses in an emergency savings account.

Understand your expenses. Budgeting can seem tedious, but this is 2020 and “there’s an app for that”!   Companies like Mint and Nerdwallet have easy-to-use apps for budgeting, but you can even use an old-fashioned spreadsheet. Capture your monthly bills, and don’t forget to include quarterly or annual expenses.

Focus on your retirement accounts. Markets go up and down, but they tend to go back up again. Continuing to contribute to your 401(k) or IRA, particularly during the down times, is essential to building a retirement savings that will support your long-term goals.

Know your risk tolerance. The bull market of the last 10 years led many people to believe they were prepared to take on more risk than they should have. When the market is down 20 to 30 percent, it is not a good time to figure out your risk tolerance. Vanguard has a helpful risk-tolerance questionnaire, and SmartAsset as descriptions of a variety of portfolios you can review online.

Evaluate your retirement goals. How many years do you have until you plan to retire? How much will you need monthly or annually when you get there? Once you determine these numbers, your 401(k) provider likely has calculators that can help you determine how much you need to save to reach this goal. If not, free resources are available online. Your investment strategy should be in line with these goals and your risk tolerance.

Keep contributing. Once you’ve determined your investment strategy and what it will take to reach your goals, stay focused and keep contributing with each paycheck. Your 401(k) gives you the perfect opportunity to dollar-cost-average your way through volatile markets, buying more shares of particular mutual funds when prices are lower. Even though the market is down overall, now is not a time to panic. March was an opportunity to add to your 401(k) at 2017 prices. Focus on maintaining a long-term perspective to ride out market volatility.

It seems like a major economic disruption has been occurring every decade or so, from the dot com crash in 2000 to the housing market collapse in 2008 and now COVID-19. All of these scenarios can impact retirement saving efforts. However, while each of those situations has a different cause, how we plan for retirement remains largely the same.

The key to planning for retirement in the age of COVID-19 is to be strategic in your planning and then stay the course. Know your budget and maintain an emergency savings. Save early and often to your retirement accounts. And, above all, stay focused on long-term goals rather than short-term risks or rewards.