Retirement During COVID-19: How to Protect Retirement During a Financial Crisis

Retirement planning and preparedness were things that most Americans didn’t do, even before the COVID-19 pandemic. According to Allianz Life Insurance’s January 2020 Retirement Risk Readiness Study, a third of people said they retired before they were ready due to a job loss. And that’s before the coronavirus caused sweeping changes across the economy.

So, is retirement during COVID-19 a good idea? And if you’re already retired or are being forced into retirement in this current economy, how can you protect yourself? If you’ve got questions, don’t worry—we’ve got answers. 

Frequently Asked Questions About Retirement During COVID-19

Can people afford to retire after the economic dip due to coronavirus?

The answer to this question depends on your own financial situation and age. Younger retirees are taking six-digit hits to their portfolios because they have plenty of time to recover. For others, though, the downturn in the markets makes it more lucrative to stay employed for longer. Otherwise, they might be withdrawing funds at a time when selling stocks gets them the least profit.

Ultimately, whether or not you can afford to retire is a personal consideration. To make your decision, gather the following information:

• How much income you could expect from retirement savings and Social Security if you retired now
• Your regular monthly expenses, including any bills, medical expenses and necessities such as groceries

If the second number is bigger than the first, you might not be able to afford full retirement right now. Even if the numbers are equal, that might cut it a bit close for comfort.

“Can people retire?” asks Paramount Investor Advisors founder Chris Hardy before answering his own question, “Absolutely. Should people retire? That’s a different story.”

How can you protect your retirement?

Hardy points out that having realistic expectations about cash flow is important in deciding whether to retire at any time. And it’s important to protect your retirement—even outside of a pandemic—with education, preparation and planning.

Some ways you can protect your option to retire now or in the new future include:

• Getting a handle on debt and paying it down so you don’t have to worry about those expenses in retirement
• Minimizing what new debt you take on
• Protecting your credit score so if you do have to take on debt, it’s as affordable as possible
• Curtailing spending so you can build cash reserves that will help you afford retirement
• Working with financial advisers to ensure your retirement portfolio and wealth-building strategies are as emergency-proof as possible

Should you update your retirement investment strategy during a time like this?

According to Alexa Serrano, Banking Editor from Finder.com, it depends on your situation. “The most important thing to remember during this time is to not let fear drive your financial decisions,” says Serrano. “When you’re planning for retirement, the key is to consider your current age and when you plan to retire. As you near retirement, your strategy will change as you’ll want to become a bit more conservative with your risk.”

So, what’s the conventional wisdom for the average person? Financial experts are advising most people to sit tight. “But if you’re going to make a move,” says Serrano, “consider adjusting your risk tolerance as opposed to selling all your investments. You can minimize the impact on your retirement account by adjusting your asset allocation.”

What are some tips for navigating retirement funds during a financial crisis?

Financial expert Suze Orman provides some tips for navigating retirement funds and investing during a crisis. First, she says that you should keep investing if you’re not yet retired—especially if you have a few years to recover. And retirees who already have investments in cash and bonds should keep them there, she says. Second, Orman says you might consider smart use of credit rather than pulling money from retirement savings accounts.

If you have a lot of cash on hand, consider placing it in a high-yield savings account. The returns might not be as high as long-term returns in stocks can be, but they’re much more stable.

How does the stimulus bill help or affect retirees?

Serrano notes that the bill includes a few changes that would apply to Americans with retirement accounts. For example, the bill makes it less expensive for people to take money out of their retirement accounts. Typically, if an account holder were to withdraw money from their IRA account before age 59 1/2, they’d incur a 10% penalty. The bill waives this penalty for withdrawals up to $100,000 until December 31, 2020.

The bill also gives account holders the option to spread out any income taxes they owe on the amount they withdraw over three years. But this change only applies to those who specifically test positive with COVID-19 or are undergoing financial hardship due to the quarantine, such as experiencing layoffs or reduced hours. It also applies to those who have a spouse or a dependent who tested positive for the virus.

Should you take advantage of the no-penalty early withdrawal?

“Dipping into your retirement account should be a last resort,” says Serrano, “even if you’re eligible to withdraw without incurring a penalty. If you withdraw funds from your retirement account, you’ll reduce your balance and in turn your future earnings.”

If you’re simply in need of some extra cash flow to make it through the pandemic, you might consider other options. That can include a short-term personal loan.

Should you agree to an early retirement package?

It depends on what’s included in the offer and whether you can afford to take it. If you retire before you’re eligible for Medicare, you may have to pay large premiums for health care if they aren’t covered in your retirement package, for example. And if you know you’ll need to rely on Social Security to pay monthly bills, remember that you get less per month if you draw Social Security benefits before full benefits age.

Unfortunately, there isn’t a clear right or wrong answer here. Adults who are approaching retirement during COVID-19 must consider all their options and take a realistic look at their finances before making a decision that’s best for them.

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