How is COVID-19 Impacting Retirment Plans?
Date: January 19th, 2021

How is COVID-19 Impacting Retirment Plans?

If you are within five years of retirement or already retired, COVID-19 might have changed your plans for your golden years. The spread of coronavirus throughout Scottsdale, Sun City West, and beyond has made it difficult to live a normal life. The pandemic may have also forced some investors to reshape their retirement plans. Let’s take a closer look at how COVID-19 is impacting retirement plans.

 

Do you want financial peace of mind? Contact Prime Wealth Advisors and see how we can help.

  

The Pandemic is Forcing Retirement Plan Reevaluation

 Pre-retirees within years of exiting the workforce are now questioning whether they will be able to leave their posts as originally scheduled. Some such pre-retirees have been downsized from their positions or even had their employment terminated. Others have lost money as the value of their investments declined. Unfortunately, some pre-retirees panicked, sold during the late March sell-off and missed out on the bull run in the months that followed.

Those who allocated the majority of their assets to sectors that were particularly hard hit during the pandemic suffered significant losses. The failure to diversify across a number of industries stung those with overexposure to the financial/banking industry and retail sectors particularly painfully.

Now is the time to take a step back, review your plan, and develop a new, more prudent approach as we move forward into increasingly uncertain times. In particular, it is in your interest to diversify your investments across a number of sectors and investment vehicles ranging from stocks to mutual funds, real property, CDs, bonds, etc.

 

To Withdraw Money Early or not Withdraw Early, That is the Question

The federal governments CARES Act hiked the withdrawal limit for 401(k) accounts, eliminating the 20% federal tax withholding along with the 10% early withdrawal tax withholdings on premature withdrawals. As a result, nearly 40% of those with a 401(k) plan, including a large percentage of millennials with such a plan, indicate they will withdraw funds from their retirement plan earlier than expected due to the pandemic. However, this decision might not prove prudent across posterity.

Withdrawing money from retirement accounts during the coronavirus pandemic extends the timeline for retiring that much longer. If you are within five years or less of retiring and withdraw money from your 401(k) early, you will likely have to spend at least another year or possibly several years in the workforce to make up the difference.

When it comes to retirement income, 63% say it is now more important to develop a strategy to address taxes in retirement. Exactly 59% of those surveyed worry more now about what taxes will do to their income in retirement than they did prior to the pandemic.

 

The Pandemic is Affecting Retirement Savings More Than the Great Recession

It is awfully disturbing to read 70% of Americans surveyed indicate the coronavirus pandemic will impact their retirement, causing them to prematurely withdraw money from their metaphorical nest egg, reduce financial contributions to retirement savings/investing accounts and ultimately work longer than planned. Sadly, the impact of the pandemic in the context of retirement accounts exceeds that of the Great Recession. It is quite interesting to learn merely 18% of Americans indicate the Great Recession severely affected their retirement plan. Approximately 40% stated the recession somewhat affected their retirement plans.

Millennials are particularly vulnerable to the financial impact of the pandemic considering the fact that both the Great Recession and pandemic occurred during a period of time when these youngsters were attempting to start their careers and segue to high-paying positions. However, surveys indicate it is the little-discussed Generation X that has been hurt the most by the global pandemic.

These individuals, between the ages of 39 and 54, are in their peak earning years. Many members of this age cohort are now unable to add to their retirement savings as expected. Generation Xers are attempting to pay the mortgage, send their kids to college, and save for their golden years. Unfortunately, more than three-quarters of the individuals in this age cohort indicate their retirement roadmap has either been significantly or somewhat affected by the pandemic.

Americans are Looking for Tax-efficient Retirement Income

Tax mitigation strategies are at the forefront of Americans’ minds now that the pandemic has made it egregiously challenging to pay the bills, maintain a decent pre-retirement quality of life, and prepare for the golden years. The delay of the tax deadline combined with the tax penalty elimination for 401(k) withdrawals has Americans far and wide thinking about how to limit their tax liability, especially in the context of retirement income. The pandemic has caused many people to seek out the assistance of professional financial advisors.

The best financial professionals provide collaborative financial guidance in unison with other professionals including accountants, small business advisors, tax specialists, and others. The overarching goal of this outreach for financial planning assistance is to mitigate risk while maximizing returns.

Pre-retirees living in Scottsdale, Sun City West, and elsewhere are rightfully fearful of their hard-earned retirement savings significantly declining in value due to an imbalanced or egregiously risky investing strategy. There is no sense attempting to master all the nuances of personal financial planning and investing for retirement when the industry experts are a phone call away.

A Comfortable Retirement is Still Possible

In short, Americans are looking for every possible way to save for a comfortable retirement without triggering a sizable tax burden. The complexity of the financial industry combined with overarching economic uncertainty is pushing Americans toward the financial professionals for expert guidance. The financial professionals at Prime Wealth Advisors are passionate about safeguarding your investments against inherent market risk. We understand how important it is to have a plan in place to protect your retirement income.


The silver lining, if there is one, to the pandemic is the potential for Americans to obtain a better understanding of personal finance and retirement planning. Contact Prime Wealth Advisors today for a complimentary consultation and make sure you are on the right track to a worry-free retirement.