The Impact of COVID-19 on Retirement
COVID-19 & RETIREMENT UNREADINESS
The COVID-19 pandemic has been with us for more than a year and it’s probably no surprise that it is making pre-retirees worry that their long-term retirement savings is not enough for them to retire when they want. According to research, Fidelity puts “55% of Americans in the yellow or red, in danger of not fully covering even estimated essential expenses like housing, health care, and food in retirement. “
Fidelity color-coded retirement readiness as follows:
- Red means significant action is needed, as you are at less than 45% of goal
- Yellow means action is needed, as you are between 65 – 80% of goal
- Light green means you are on track, as you are between 80 – 95% of goal
- Dark green means you are comfortable, as you are at greater than 95% of goal
And Retirement Unreadiness is not just limited to one generation.
- Generation Y (born 1978 – 1988): 62% are in the yellow or red;
- Generation X (born 1965 – 1977): 58% are in the yellow or red; and
- Baby Boomers (born 1946 – 1964): 48% are in the yellow or red.
But COVID has Really Ratcheted Up the Worries
There are a lot of studies that document how the pandemic has impacted retirement savings, as many of us have had to tap into retirement accounts just to pay expenses.
And for those impacted by the pandemic, a retirement study by Wells Fargo found that 58% now say they don’t know if they have enough to retire because of COVID-19. Moreover:
- 70% say they are worried about how to make sure they don’t run out of money in retirement;
- 61% say they are much more afraid of life in retirement; and
- 61% say the pandemic took the joy out of looking forward to retirement.
What should you do if you are one of the 55% in the yellow or red? Or how can you be one of the 30% that is not worried about running out of money in retirement? Well, everyone is different, but the key is to make sure you have a plan to get there. And if you do have a financial plan, now is a good time to review it to ensure that you are still on track.
A CHECKLIST FOR YOUR RETIREMENT PLANNING
The time to begin planning for your retirement future really is now. It sounds trite, but when it comes to preparing for retirement, the earlier you start, the better. Here are some steps to help you achieve your retirement objectives:
- Review your current financial situation by assessing your income and assets versus your expenses and liabilities.
- At first, determine a realistic amount to contribute regularly to your employer-sponsored qualified retirement plan, e.g., a 401(k) plan. Over time, try to maximize allowable contributions to your savings plan and take advantage of the company match, if offered.
- In 2021, you can contribute up to $6,000 into a traditional Individual Retirement Account (IRA) or Roth IRA. If you are age 50 or older, you can contribute an additional $1,000. Depending on your participation in other qualified plans, contributions to a traditional IRA may be tax deductible. Earnings for both traditional and Roth IRAs have the potential to grow on a tax-deferred basis.
- Work toward reducing your debt. Pay off large bills as soon as possible. Curb your spending to avoid taking on any new debt that could carry over into retirement.
- Consult with a qualified professional about your life, health, and disability income insurance policies to determine the amount of coverage for your current and future needs.
- Find out how much you can expect to receive in retirement from pension plans, veterans’ benefits, or Social Security. To get an estimate on your future Social Security benefits, visit www.socialsecurity.gov.
- Analyze which expenses are likely to decrease after you retire (clothing, commuting, etc.) and which are likely to increase (medical, travel, etc.), and plan accordingly.
If you adhere to your checklist, you may see your savings increase as you get closer to reaching your retirement income goals. Remember, it is never too early to start planning for your future.
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