Is the pandemic affecting your retirement provision?
According to a Federal Reserve report, 26% of non-retired adults surveyed said they did not have distress … [+]
From my perspective as an investment advisor with a focus on retirees, I want everyone to pay for themselves first by automating the savings process. And the further away you are from retirement, the more impact the dollars saved will have when properly invested. Of course, things can intervene, like losing a job or the unexpected – in this case a pandemic.
Despite COVID-19, a recent individual retirement account (IRA) analysis in the first quarter of 2021 by Fidelity Investments, one of the world’s largest asset managers, showed a solid upward trend in saving for retirement as average balances for more than 30 million IRA , 401 (k) and 403 (b) accounts hit record highs for the second straight quarter.
However, amid the positive financial news, many people face challenges related to saving for retirement, and recent data from a Federal Reserve report for the fourth quarter of 2020 illustrates some of the problems.
The report, entitled “Economic Well-Being of US Households in 2020”, reviews the results of the US Federal Reserve’s eighth annual “Survey of Household Economics and Decisionmaking”. The more than 11,000 participants were adults aged 18 to 75 years.
The survey, conducted in November 2020, compared the fourth quarter of 2020 to the same period last year before the pandemic fully manifested itself in the United States. Overall, the number of people who stated that they were financially worse off (24%) increased in 2020 compared to the previous year (14% in 2019).
Emergency use of pension funds
While pension funds work best when allowed to grow untouched, they sometimes need to be used as a source of emergency funds, especially during economic challenges. In response to the pandemic, Coronavirus Aid, Relief and Economic Security (CARES), which came into effect in March 2020, increased the maximum amount for a loan from Eligible Pension Plans for 2020 to $ 100,000 and also waived the 10% early withdrawal penalty IRAs, 401 (k) s, and other defined contribution plans in certain circumstances.
According to a survey by the Federal Reserve, 9% of non-retired adults said they had used their retirement savings in the past 12 months, and the percentage rose to 14% of non-retirees who were laid off and withdrew or withdrew funds from their retirement have paid off savings.
Fifteen percent of those with smaller retirement accounts with balances less than $ 50,000 either borrowed or withdrawn from the accounts, compared with 9% of those with balances of $ 50,000 or more.
If you have withdrawn a 2020 coronavirus-related distribution from your retirement account, the CARES Act provides a three-year repayment period. For more details on loans and the CARES Act, please visit IRS.gov.
Did you retire because of the pandemic?
About one in three (29%) of adults who retired during the period surveyed by the Federal Reserve said factors related to COVID-19 played a role in their decision to retire.
Do you know if your retirement is on the right track?
If, like 45% of those surveyed, you feel that your retirement savings are not on track, there is no better time than to convert now, if your situation allows. (Only 36% of early retirees felt their retirement plans were on the right track. The remaining 19% were unsure.)
If, like one in four respondents (26%), you do not have a pension, there is no better time to start now, even if your personal situation allows it.
To take this route, use the free online tools of FINRA (the regulator for the financial industry), which regulates brokerage firms. Start with the FINRA calculator to estimate what you need to save for retirement.
Financing your future
As the Fidelity Report shows, many people continue to do well when it comes to saving for retirement. Others struggle. Yet a commitment to save for retirement and a plan to achieve it, even if only a small amount of money is at stake now, can pay off when you need it most.
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