coronavirus

How to Protect Retirement Savings During Coronavirus

For the average American who is saving for retirement the latest economic and stock market news associated with coronavirus sounds terrifying. The coronavirus pandemic disrupted our daily lives and affected our finances.

For those who are close to retirement, the financial news is the most frightening. You have been saving for retirement for decades and seeing all your savings going down brings havoc to your retirement plans.

How to protect your retirement savings is the most important question for many baby boomers.

When the stock market is volatile as right now it is hard to say how long this rough patch will last. For those who are 20 or 30 years away from retirement, this market downturn should not cause major concern.

Eventually, the market will bounce back, and you will have time to recover those losses. But if you are near retirement and your retirement savings took a major hit you may want to postpone your retirement plans.

According to the Market Rates survey:

36.4% of Americans within 20 years of retirement expect the corona crisis will delay their retirement.
37% of Americans aged 45 to 64 don’t know what their investments are doing in this environment.
Of those who know where their investments stand, 43.8% of people in the 45 to 64-year-old age group reported losses of at least 10%.

For many baby boomers maybe, it is not the right time to retire now with the stock market being in free fall for many days. But it is a great time to review your plan and try to protect your retirement savings.

Adjust your retirement age and time you want to retire.

With the stock market down, unemployment high and the whole country in lockdown is hard to predict how soon our life will get back to normal. We do not know if the economy will recover fast or the country is heading toward a full-blown recession.

If you are 5 to 7 years away from retirement you still have time to protect your retirement savings by adjusting the time of your retirement. Unfortunately, you cannot change anything if you are already retired and watched your retirement savings shrunk.

However, if you are a few years away from retirement you should try to wait it out until the market is in better shape. This way you will have time to recover your losses and improve your retirement funds.

Do you know if you have enough saved for your retirement?

Look at your current savings and compare them with your financial goals. You maybe still able to retire on time if your savings are in good shape.

But what to do when you are behind on your savings or your savings have been hit hard? In this case, you maybe better off saving for a few more years and adjust the time when you can retire.

Don’t cash out your 401(k) savings.

coronavirus -a man holding US dollar banknotes

When the stock market is volatile, your first reaction is to protect your savings and pull all the money from retirement accounts. We all have that feeling when we watch the market being in free fall and expect the market will only get worse. We feel that it is the right thing to do by cashing out now before we lose any more money.

The truth is by cashing out now you can make a costly mistake. Because you cannot lose money until you sell your investments. When you sell your investment and the market is down, you will be locking in your losses.

The best thing you can do right now is to ride out the storm and wait for the stock market to calm down. As soon as the stock market starts to recover, your investments will rise in value as well. You will be happy to know that you are not missing out on all potential gains when the stock market starts to recover.

In addition to that, if you pull out money from your 401(k) and IRA accounts before age 59 ½, you will have to pay a 10 percent penalty fee and income taxes on the amount you withdraw.

Review your portfolio and adjust for risk tolerance.

a man and a woman at the table looking at laptop - adjusr retirement portfolio

Right now, it is a good time to look at your portfolio and see if you need to adjust it for your age and risk tolerance. When you get older you should modify your portfolio. More money should be invested in conservative investments like bonds, treasury notes and cash investments with less money invested in stocks.

In order to protect your retirement savings, you need to diversify your investments. Usually, investments are diversified based on asset allocation, your age and risk tolerance.

I am sure that most people set up their portfolios a long time ago and enjoyed the healthy market long run of the last decade. But recently things have changed so fast that most of us did not have time to adjust our portfolios to the new stock market environment.

However, it is not late to make some adjustments and protect your savings from future market dips. Make sure that your investments are diversified properly going forward.

If you are in your 50s think about your risk tolerance. Then decide how to allocate any new money going into your investments.

If you are in your 60s you should allocate more of your money in safe investments going forward. This strategy will allow you to keep your investments as safe as possible if the stock market will continue to fall in the future.

For several weeks I have not had the stomach to look at our portfolio and see how much money we have lost. But from the last recession, I learned the importance of having cash reserves at all times. Since then we keep 5 percent of our retirement savings in cash. It helps me to sleep through the night knowing that if things go bad and we lose our jobs we have quick access to cash. We call it our spending bucket. It helps to know that we have a temporary source of cash to pay the bills.

I would recommend keeping part of your money stashed in cash if you are close to retirement. Theoretically, you should have enough cash to cover a year of bills or even more. It should help to survive through the market downturn when you are not working.

Your spending bucket should be invested in safe assets like money market funds or short-term bonds that are not subject to big price declines. Savings accounts and money market funds are considered as cash investments. These are called cash investments because they are as good as cash. You can withdraw them at any time without penalty fee.

Don’t stop your 401(k) or IRA contributions

laptop, cup of coffee, Iphone, flower pot on the table

I think that many people drive themselves crazy checking 401(k) or IRA balance every day. It is hard not to do that knowing that the stock market is in bad shape due to coronavirus pandemic. In the current financial situation, it is tempting to cut back on your contributions because you want to protect your retirement savings. It is really easy to feel you are throwing good money after bad. None of these are good feelings.

But if you are able to keep your job it is smart to continue your contributions to 401(k) or IRA. Stay the course and when the market recovers, you will be glad that you did not miss the gain from that growth.

Some financial gurus even recommend boosting your retirement savings and contributions. Since the stock market is down you have an opportunity to buy quality investments at low prices.

On another hand, social distancing and lockdown measures make it hard for us to spend money on restaurants, concerts, sports events, or travels. When you are mostly confined to your home take that extra cash and add to your retirement savings.

If you are in your 50’s and planning to retire at full retirement age, you have 15 years or longer to contribute to your retirement funds. Time and compounding could still work for you over this time period. Therefore, keep saving and contributing money to your 401(k), IRA, and Roth IRA.

But if you are in your 60’s you have less time to recover your losses unless you want to postpone the time when you retire. Check out how much is your social security and decide if you can live off that paycheck before starts withdrawing money from retirement funds.

Article by Forbes: 6 Steps to Reduce Financial Fragility and Protect Retirement After Covid-19

Final Thoughts

Sometimes I feel that the entire world is in panic mode due to coronavirus spread. This health crisis has changed the way we live, work, and socialize. We put our lives on hold while watching the stock market crashed and our retirement savings shrunk.

However, I believe you can protect your retirement savings by adjusting your risk tolerance, asset allocation, and time of retirement. Continue contributing to your retirement funds as much as possible. By following these guidelines, you will be in a much better position to meet your retirement goals despite market conditions.

How do you protect your retirement savings during the coronavirus crisis? Share your thoughts with us in the comments below.

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Disclosure: This information is only educational. The intent if this post is to provide a simple guideline for an extremely complicated matter. I am not providing any specific financial advice or recommendations to any of my readers.

Coronavirus, Retirement Planning, and More

by Maggie 6 Comments

The world has changed. A couple of months ago nobody heard about Coronavirus. It was an unknown disease with symptoms of flu spreading and killing people fast. A couple of months ago, we have heard about Coronavirus outbreak in distant places, but today, it came to our doorsteps.

We’re all got affected by the crisis caused by Coronavirus (COVID-19) pandemic. Schools and universities are closed, major concerts and sporting events are canceled. There are hardly any people walking along the quiet streets. With travel ban restrictions, the whole travel industry is almost shut down. It’s hard to predict what will happen next week or next month.

We all have fears. We don’t know what will happen next. But we can prepare and become more resilient to our worries and anxiety. Each crisis feels like the end of the world. It’s hard not to fall victim to the terrifying news.

Like most people, I have more questions than answers in my head.

What this new disease means for my finances.
Should I sell all my assets?
What effect will this have on my future retirement?
When is it going to be over?

I try to stay calm and don’t make any foolish financial moves. I believe that despite a terrifying global crisis, the world will go on, and the stock market will recover to reach new highs in the future.

How Coronavirus pandemic will impact our personal finance and retirement planning?

The virus has a major effect on our wallets. The stock market is down, and many people are afraid to look at their retirement portfolios. Honestly, I am one of them. A week ago, I checked our portfolio and have learned that we lost several thousand dollars. I have made some quick adjustments and placed tighter trailing stops to several stocks I am still holding in our portfolios. But a week later, I have no stomach to look at it again.

Market bottom: Getting closer? by Fidelity Investments

Have emergency savings and keep extra money in cash.

We all watch how the stock market continued to crash. At this moment the market reaction to the coronavirus is like a dotcom crash, 9/11 or a financial crisis of 2008. The past market downturns always taught us a good lesson of having cash reserves.

Cash is King! We have all heard that statement, and it is true. If you’re close to retirement, you should have a chunk of your savings in cash. You should have enough cash to cover your living expenses for one or two years, so you can ride out market downturns. You don’t want to start depleting your retirement accounts at the wrong time.

Furthermore, it’s important to have emergency savings for anything unplanned like home and car repairs, unexpected medical bill or an emergency trip to family or a friend.

The financial experts recommend having 3 to 6 months’ worth of your living expenses while you’re working. When you retire and living of the fixed income, it’s wise to have up to 12 months saved in your emergency fund.

Re-evaluate retirement plans and time of your retirement.

The virus has a major effect on our lives. During this pandemic we have to practice social distancing, minimize social interaction and stop most of our activities. But we need to stay positive and focus on the future.

Unfortunately, the recent market crash changed many baby boomer’s retirement plans. If you were planning to retire this year or even next year, you may need to change this decision and give your portfolio extra time to recover.

Even the stock market appears to be in a bad shape, this is not the first time it’s facing the global crisis. The good news is that the market has a long history of recovering from declines and crashes. Therefore, don’t drive yourself crazy checking your 401(k), IRA or Roth balance every day. Instead, keep working and funding your retirement accounts.

Right now, it is a good time to invest in low prices. If you stick with your regular retirement plan contributions, there is a good chance you’ll be better off when this crisis is over.

Stay as flexible as possible. If you are close to full retirement age and planning to retire this year, you may need to re-evaluate the time of your retirement. Delaying retirement and claim of your Social Security for a year or two will help to boost the benefit. After all, you will lock in a higher Social Security paycheck for life.

Don’t sell your investments.

There is a lot of uncertainty and terrifying news in the world today. It’s a difficult time for all baby boomers. You could be in a very stressful situation if you’re getting closer to retirement or mapping out your retirement planning.

Therefore, the best thing you can do is to stay calm and don’t panic. You’ll only lock in losses if you start selling your stocks or mutual funds while they’re down. It may be nerve-wracking to see money evaporating from your retirement portfolio.

But don’t make any rash decisions and sell your assets, because you’ll regret it later. Remember that these bad times shall pass, the stock market will recover, and you’ll be in a strong position to retire once it does.

If you want to know more about coronavirus and retirement planning head to an article by Forbes:

8 Ways Coronavirus Will Drastically Alter Boomer Retirements

What are some tips for working from home?

notepad, smart phone and a pen on the table

This is a new world for all of us and many people are required to work from home for the next several weeks.

Honestly, I don’t like to work from home for a long period of time. I cannot focus on my work and get sidetracked easily. Instead of working, I would start cooking or cleaning. I know that many people would agree with me because they have a hard time getting anything done as well.

I have a few tips on how to work from home:

Create a dedicated work area. Roman and I are both working from home and each of us has a dedicated work area. He works upstairs in his office and I work downstairs in mine. Not everyone has the ability to create two separate home offices. But you can try at least to create a work area. Having a dedicated work area will help you separate work and life and to stay focused and organized.

Have a daily work schedule. I am a big advocate for a daily work schedule. When working from home, I am up at 6 a.m. and start working as soon as I am done with taking a shower and a quick morning exercise. I use the same routine as I would be getting ready to go to the office. It helps me mentally get into the “work mood” each day. In addition to that, you can set up a starting and ending time, lunch break time, or even time for your quick walk around the neighborhood.

Don’t watch TV and cut out social media. While working from home, you have to be efficient with time. During the day it’s so easy to get distracted with TV news or Netflix movies and then trying to catch up with work at night. While social media and TV is great, but you have to be careful and don’t let it impact your work in a negative way.

How to control fears and anxiety?

These days, it can feel that the world is full of nothing but bad news. We’re in the midst of Coronavirus pandemic and for many people, the uncertainty is the hardest thing to handle. Every day when I open my laptop or turn on the TV to watch the news, my heart gets filled with fear of unknown. However, there are many ways to manage your anxieties.

Stay informed, but don’t get obsessed with the news. Experts recommend setting a limit on how much time you spend consuming information each day. Constant monitoring of news and social media can fuel your anxiety. It’s better to step away from the following media if you start feeling overwhelmed. I should stick to these rules and reduce my exposure to any news. It will help me to stay calm and positive about the future.

Focus on what you can control and leave what you can’t. We live in a time of global crisis caused by the Coronavirus and there are many things outside of our control. We need to shift our focus on what we can control. We can’t control how fast the Coronavirus is spreading through the whole country, but we can take steps to reduce our personal risk to get infected:

Wash your hands frequently with soap and water or use a hand sanitizer that contains at least 60% alcohol.
Avoid touching your face and try to wash your face frequently.
Stay home as much as possible.
Work from home if you can, avoid crowds and gatherings of 10 or more people.
Avoid all non-essential shopping and travel.

Take care of your body and spirit. We all know that staying active helps to relieve stress and release anxiety. While the gyms are closed, you can still walk, hike or cycle. If you stuck at home, there are many things you can do even without equipment, such as yoga and exercise. Look online for exercise videos so you can follow and practice.

Get out in nature, enjoy the sunshine and fresh air. Even a walk around your neighborhood can make you feel better and improve your mood. Just be sure to avoid crowds and keep your distance from other people.

Eat healthy food. Coronavirus pandemic is affecting every aspect of our lives. Eating more meals at home is a new routine for many families. Healthy meals should include a big portion of fresh fruits, vegetables, and whole grain. Meat portions should be smaller.

When you stock up your pantry or a freezer go easy on the frozen dinners because most are high in sodium, fat, and calories. Limit purchases of chips, cookies, sodas and ice cream. They are high in empty calories.

I like to cook. Most of our meals are homemade from fresh ingredients. We stocked up a bit to prepare for any supermarkets supply interruptions caused by the Coronavirus. Otherwise, our grocery shopping was normal in the past few weeks, besides the lack of toilet paper and paper towels.

beets salad-healthy food-retirement — Russian-style dish called “herring under a coat” It has layers of chopped herring, boiled potatoes, carrots, red onion, apple and topped with lots of beets and mayo

Perfectly cooked honey-glazed pork ribs with brussels sprout and green apple salad

How our travel plans got affected by Coronavirus.

The travel and leisure industry got affected the most by Coronavirus pandemic. We were planning to go on the Greek Islands cruise at the beginning of May. We booked our plane tickets, three-nights in charming hotel in Athens and paid a cruise deposit to Celestyal Cruises. A few weeks ago, we had to call and cancel our cruise reservation before the company charge us a full amount.

Right now, we are in the process of trying to get a refund from Lufthansa airline. Even we bought travel insurance, it’s not that easy to get a full refund by canceling the trip. Most of our travel expenses were easy to cancel with or without penalty. So far, I hope that we can still go on vacation this year when the Coronavirus will be more contained.

Final Thoughts on Coronavirus

Coronavirus has changed our life. It has changed how we live and work. Schools and universities are closed, big events canceled, and many people are working from home. Each of us are jugging a different set of challenges. It’s hard to deal with these sudden and dramatic changes which affected the whole world. Many countries are facing huge economic fallout caused by COVID-19.

In times like this, it’s important to take a deep breath, and not to dwell on the bad news. So, let’s not be hard on ourselves or one another. Let’s rise to the challenge together, with compassion and resilience. I do believe that eventually the Coronavirus will be contained. The economy and stock market will recover as it has many times before. Our life will go back to normal as it has many times before.

Share your thoughts with us in the comments.

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