The outbreak of the novel Coronavirus in 2020 affected many lives, businesses, families, and other spheres of life. It brought about untold hardship, unemployment, and economic recession – this made the average American depend solely on his/her retirement savings.
However, many who were hoping to retire in a few years and settle down on their retirement savings had their hope dashed by the outbreak of the global COVID-19 pandemic – forcing them to make withdrawals from their retirement savings.
Therefore, before embarking on any investment, sell orders, and other things – some factors will guide you to right your retirement savings if it has been depleted by the Coronavirus setbacks – these tips will help you to boost your retirement savings in 2021 and beyond
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Do A Quick Assessment Of Your Present State
So, you need to reassess your current state and where you need to be in accomplishing your goal. Besides, you need not worry about taking a loan from your 401(k), IRA, or your ROTH account. There are several ways of getting this done without necessarily affecting what you hope to achieve in the future.
Therefore, it is advisable to consult your financial advisor to help you carry out what is known as “retirement income analysis.” – Then the outcome can be used as a guide to right your retirement savings.
It is advisable to create a monthly plan to rebuild your portfolio when saving for retirement. So, you should increase your monthly savings at least every quarter. This will help you to recover in the shortest possible period.
Besides, there is a need to consult an accountant who will assist you file your taxes correctly and enjoy tax relief. The Coronavirus Aid, Relief, and Economic Security Act waived the additional 10 percent tax penalty on up to $100,000 in average retirement savings accounts in 2020.
However, if you make a withdrawal – you will owe income tax which can be credited back once your payback within three years.
Save More and Cut-down Expenses
You must do everything possible to increase your savings, and the Coronavirus presented an opportunity to step up savings. For instance, cut down on travel expenses and vacations.
So, with this, you stand the chance of increasing your 401(k), traditional or Roth IRA, and 403(b) retirement savings account.
Interestingly, Americans that are 50 and older can boost their retirement savings for 2020 and 2021 by an additional $6,500 above the traditional annual savings limit of $19,500 for the operators of 401(k)s and an additional $1,000 above for annual savings limit of $6,000 for the operators of IRAs – all these are ways excellent ways of boosting your retirement savings after Coronavirus setbacks.
Besides, if you do not have access to the 401(k) – you could save into a traditional, SEP, or Roth IRA. Also, you could convert your 401(k) to an IRA account that costs less – because it has many investment options.
Consider Other Options
This can be a way of backup plan – your retirement savings account should be the last place to withdraw funds from. Therefore, having one, two, or more options will help you prevent the urge to take funds meant for your retirement savings.
Also, it is advisable to create an emergency fund account that is strictly set aside in the event of emergencies – by this, there will be no need to visit your retirement savings when unexpected occurrences happen.
Building your emergency fund account might require you to start small and increase it over time. Besides, having a home equity fund could also serve as a way of escape if you suddenly fall into an emergency and you need quick cash.
Here are the advantages of borrowing from your home equity fund;
- The interest paid on this loan is tax-deductible. This may not be deductible when you take a loan from your 401(k) savings.
- Future returns on your retirement fund are still guaranteed
- Repayment of home equity loan might take a longer period thereby further reducing your stipulated monthly payments.
- There is no penalty for paying back the loan early
However, you must note that your loan payment could increase if there is a rise in interest.
Also, the Roth IRAs could provide funds in the event of emergencies. These IRAs are funded with after-tax funds and the withdrawals are not taxed as long as the Roth IRA has been held for over 5 years and funds are only withdrawn after the age of 59 and half years.
If the Coronavirus has moved you into a lower tax region due to the cut down on your income – you could visit your financial advisor and request your traditional IRA be converted into a Roth IRA. This will mean that fewer taxes are paid and this could be beneficial in the long run.
Go Over Your Portfolio
Financial advisors recommend that the best time to revisit your portfolio is now. This is important because it will ensure that your portfolio allocation did not change concerning your risk tolerance, your financial goals, and your timeline.
For those who have 5 years left before retirement – you should begin to cut down on investment risk because this will help you to avert unexpected occurrences that might throw you off-balance, making you make late adjustments close to your retirement.
So, the initial setback necessitated by the Coronavirus should not be seen as a bad time because those who remained in their investment were beneficial in the quick and steep rebound of the market
So, whether you took a loan or paused contribution to your plan – the current value of your investment is worth more than what it was last year. This means that your money was still working for you.
Therefore, if you are still contemplating on how to right your retirement savings after Coronavirus setbacks – do quick assessments of your present state, re-strategize on how to better run your portfolios, save more by cutting down on unnecessary expenses, and consider other options before getting into your retirement savings.
With all these, you are bound to replenish your retirement savings after the Covid-19 pandemic era.