Is the pandemic affecting your retirement savings?

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From my perspective as a retiree-focused investment advisor, I want everyone to pay themselves first by automating the savings process. And, the further away retirement is from today, the greater the impact of the dollars saved when invested correctly. Of course, things can intervene, like losing a job or being struck by the unexpected – in this case, a pandemic.

Despite COVID-19, a recent First Quarter 2021 Analysis of Individual Retirement Accounts (IRA) by Fidelity Investments, one of the world’s largest asset managers, showed a strong upward trend in retirement savings, average balances of over 30 million IRA, 401 (k) and 403 accounts (b) having reached record levels for a second consecutive quarter.

However, amid the positive financial news, many people have faced challenges with retirement savings, and recent data from a Federal Reserve’s fourth quarter 2020 report illustrated some of the problems.

The report

The report, entitled “Economic well-being of American households in 2020, reviewed the results of the eighth annual Federal ReserveSurvey of Household Economics and Decision Making. “The more than 11,000 participants were adults aged 18 to 75 and over.

The survey, conducted in November 2020, compared the fourth quarter of 2020 to the same period a year earlier, before the pandemic fully manifested itself in the United States. (24%) in 2020 compared to a year earlier (14% in 2019).

Emergency use of pension funds

While retirement funds work best when they are allowed to grow unaffected, there may be times when they need to be used as a source of emergency funds, especially during economic hard times. In response to the pandemic, the Coronavirus Aid, Relief and Economic Security Act (CARES), enacted in March 2020, increased for 2020 the maximum amount of a loan taken from qualifying pension plans to $ 100,000, and also waived the 10% penalty for early withdrawals from IRAs, 401 (k) and other defined contribution plans in certain circumstances.

According to the Federal Reserve’s survey, 9% of non-retired adults reported using up their retirement savings in the previous 12 months, and the percentage rose to 14% for non-retirees who were made redundant and borrowed. or cashed out their retirement funds. savings.

Fifteen percent of those with smaller retirement accounts, with balances of less than $ 50,000, borrowed or cashed accounts, compared to 9% of those with account balances of $ 50,000 or more.

If you have withdrawn a 2020 coronavirus-related distribution from your retirement account, the CARES law allows a period of three years to repay it. More details on loans and the CARES law can be found at IRS.gov.

Have you retired because of the pandemic?

About one in three adults (29%) who retired during the period studied by the Federal Reserve said factors related to COVID-19 played a role in their decision to retire.

Do you know if your retirement is on track?

If you, like 45% of respondents, believe that your retirement savings are do not on track, what better time than now to retool, if your circumstances permit. (Only 36% of pre-retirees felt that their retirement savings have been on the right track. The remaining 19% were not sure.)

If you, like one in four (26%), have no retirement savings, then there is no better time to start than now, assuming again your personal circumstances allow it.

To get started, take advantage of the free online tools offered by the Financial Industry Regulatory Authority (FINRA), which regulates brokerage firms. Start with the FINRA calculator to estimate what you need to save for retirement.

Finance your future

Many people continue to do well when it comes to saving for retirement, as the Fidelity report demonstrates. Others are in trouble. Yet a commitment to saving for retirement and a plan to achieve it, even if it only involves a small amount of money right now, can pay off when you need it most.

Questions?

Email me with questions related to retirement at [email protected]. Include your city and state, and mention that you are a forbes.com reader.

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