From my perspective as investment counsel focusing on retirees, I want to see everyone paying themselves first by automating the savings process. And, the further retirement is away from today, the more impact those saved dollars have when invested properly. Of course, things can intervene, like losing a job, or being hit with the unexpected — in this case a pandemic.
Despite COVID-19, a recent 2021 first-quarter analysis of individual retirement accounts (IRAs) by Fidelity Investments, one of the largest asset managers in the world, showed solid upward trends in saving for retirement, as the average balances for more than 30 million IRA, 401(k) and 403(b) accounts reached record levels for a second consecutive quarter.
However, in the midst of positive financial news, there are many people who have faced challenges related to saving for retirement, and recent data from a Federal Reserve report on the fourth quarter of 2020 illustrated some of the issues.
The report, titled “Economic Well-Being of U.S. Households in 2020,” reviewed the results of the Federal Reserve’s eighth annual “Survey of Household Economics and Decisionmaking.” The more than 11,000 participants were adults ages 18 to 75-plus.
The survey, conducted in November of 2020, compared the fourth quarter of 2020 with the same period a year earlier, before the pandemic fully manifested itself in the U.S. Overall, there was an increase in the number of people who said they were worse off financially (24%) in 2020 compared with a year earlier (14% in 2019).
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Emergency Use Of Retirement Funds
While retirement funds do best when they are allowed to grow untouched, there are times when they might need to be tapped as a source of emergency funds, especially during economic challenges. In response to the pandemic, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law in March of 2020, increased for 2020 the maximum amount for a loan taken from eligible retirement plans to $100,000, and also waived the 10% penalty for early withdrawals from IRAs, 401(k)s and other defined-contribution plans under certain circumstances.
According to the Federal Reserve’s survey, 9% of non-retired adults said they used their retirement savings during the prior 12 months, and the percentage rose to 14% for non-retirees who experienced a layoff and borrowed or cashed out funds from their retirement savings.
Fifteen percent of those who had smaller retirement accounts, with balances under $50,000, either borrowed from or cashed out the accounts, compared with 9% of those who had account balances of $50,000 or more.
If you took a coronavirus-related 2020 distribution from your retirement account, the CARES Act allows a three-year period to repay it. More details on loans and the CARES Act can be found at IRS.gov.
Did You Retire Due to The Pandemic?
About one out of three (29%) of adults who retired during the time period surveyed by the Federal Reserve said that factors related to COVID-19 played a part in when they decided to retire.
Do You Know If Your Retirement Is On Track?
If you, like 45% of those surveyed, feel your retirement savings are not on track, what better time than now to retool, if your situation permits. (Only 36% of pre-retirees felt that their retirement savings were on track. The remaining 19% were not sure.)
If you, like one out of four respondents (26%), have no retirement savings, there is no better time than now to start, again assuming your personal situation permits.
To begin on that path, take advantage of free online tools offered by FINRA (the Financial Industry Regulatory Authority), which regulates brokerage firms. Start with FINRA’s calculator for estimating what you need to save for retirement.
Funding Your Future
Many people continue to do well when it comes to saving for retirement, as demonstrated by the Fidelity report. Others are struggling. Yet a commitment to saving for retirement and a plan for accomplishing it, even if it involves only a small amount of money for now, can pay off when you might need it most.
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