Your plans for retirement have been thrown off. Now what?

One of the financial consequences of COVID-19 was that people’s retirement plans were interrupted in various ways. In fact, a survey by MagnifyMoney found that 47% of workers either stopped or lowered their retirement savings contributions during the coronavirus pandemic – many doing so out of necessity.Here are some ideas to help you get back on track.

General tips for all

Assess your current situation.

Figuring out where you stand with your finances is something that everyone should consider doing regularly, but particularly when big changes are happening. Start with your current employment situation. Have you lost any income due to the pandemic? If you have a partner, did he or she lose a job or need to scale back, perhaps to care for children who are schooling from home? Do you have ample emergency savings to get you through? Are you struggling to pay the bills you have?

You may want to sit down with your budget to see how much is coming in and what your monthly expenses are. The second part of your assessment is to think about how far out you are from retirement. The further away it is, the more time you have to recover any losses or catch up. You may want to review your retirement savings to decide if you need to ramp up your savings if you can or scale back.

Should you stay in the market?

Most financial experts agree that panic selling during downturns can end up being a bad move. For one thing, history has shown that markets often bounce back over time. This past year was the perfect example, with markets plummeting drastically in March and April, only to recover to record highs by the fall.2 Those who stuck it out are likely back to where they were or even ahead of their pre-pandemic portfolio levels. That said, it’s always best to check in with a financial professional to go over your individual risk tolerance.

Those with a couple of decades to go before retirement may opt to be more aggressive, whereas someone approaching retirement age may want to shift to more stable holdings. No matter the situation, having a diversified portfolio can help offset market volatility.

Remember, neither asset allocation nor diversification ensure a profit or guarantee against market loss.

There's no one-size-fits-all solution

If you paused your retirement contributions, you may want to start catching up. But the plan for doing that may vary depending on your other obligations. For instance, if you have high-interest debt to pay down, you might prioritize that before you contribute to your retirement fund. If you're having trouble prioritizing, connect with a financial professional who can help guide you.

A good rule of thumb is to contribute enough to get the company match if your company offers a plan. So for example, if your company matches up to 3%, by contributing at least 3%, you would get the full match.  Socking away as much as you can, especially if you’re young, can lead to significant growth over time.

If you can swing it, keep working on your retirement nest egg and increase your contributions as your income allows. If you're comfortable with your small contribution after a month or two, then you may want to consider increasing it. The money comes out of your paycheck pretax, so you probably won't feel it as much as you think.

Finally, if you are getting a tax return, stimulus money, or some type of windfall, you might consider contributing a lump sum amount to make up for the months of contributions that you missed. For 2023, you can contribute up to $22,500 total for the year in a plan your company may offer. If you’re age 50 or older, you can contribute an additional $7,500 as a “catch-up” contribution.

Return to retirement plans when you can

It’s sometimes necessary to make short-term adjustments to get through a financial setback. If you need to pause your retirement savings for a bit, living frugally and using your own rainy-day accounts can help you safeguard existing retirement account funds.

The key is to be strategic and consult with a financial professional as needed who can help you get back on track.

1 “3 in 10 Americans Withdrew Money from Retirement Savings Amid the Coronavirus Pandemic – and the Majority Spent It On Groceries” by Sarah Berger, published in Magnify Money™; May 2020

2 Past performance is no guarantee of future results.