Top 3 Retirement Mistakes People Make During the Pandemic
By: Kyle Ryan
Now, a year after the start of the COVID-19 pandemic, many people’s finances have been in dire straits. Job loss and reduced hours take a toll on the daily household budget, not to mention long-term planning. For some, financial pressure has affected their nest egg.
A recent survey found that nearly one in three American workers withdrew or borrowed money from an IRA or 401k during the pandemic. Almost two-thirds used these retirement savings to cover their basic expenses.
For millions of households, March 2020 to March 2021 has been financially difficult. Many have had to put retirement planning on the back burner.
Amin Dabit, a certified financial planner with Personal capital, advises investors to refocus on the long term.
“Don’t be ashamed if you feel regret or if you’ve made mistakes in planning for your retirement,” he said. “It’s never too late to change the course of your retirement – you may need to make some adjustments, like working longer, but what we recommend is that people do their best to try to correct it. the lesson.”
Knowing where you are at can help you know where you will go. Below are three common money-making mistakes, along with tips on how to avoid them.
Mistake # 1: Delaying Retirement Savings
Retirement is often a person’s most expensive expense. The golden years often cost more than four years of college, a new home in most places, and your children’s college education. However, 48% of Americans over 55 have not saved anything for retirement. In other words, nearly half of Americans who may soon be retiring have absolutely nothing to support them.
So when is the best time to start saving for retirement?
“It’s now,” urges financial coach Tori Dunlap, founder of Her First $ 100K. “And if you’re waiting for the perfect time to start saving for retirement, I’ll let you in on a little secret: Retirement can be hard to achieve without investing. “
Dunlap achieved its first silver milestone – i.e. the namesake $ 100,000 – using the Personal capital money management tools. This free online technology allowed her to visualize her monthly savings goals and plan for the future under different scenarios.
People facing financial challenges during the pandemic may need to take a multi-step approach to investing in retirement savings.
Millennial Money Coach Erin Gobler offers the following tips for people who are paying off debt, rebuilding their savings, and focusing on retirement.
1. Review your budget
The more leeway you have in your budget, the faster you will be able to pay off your debt while saving money for your retirement each month. Using online financial tools, you can find out where your money is going now. This allows you to identify spending hot spots and redirect funds to debt repayment or higher impact investments.
2. Build your emergency fund
An emergency fund ensures that there are no financial emergencies – car repairs, replacement of household appliances, etc. For those who are currently in debt, Gobler suggests making the minimum payment on your debt and putting the extra money into an emergency fund.
Alison Heisner, Chartered Financial Analyst at Personal Capital, recommends saving enough money to cover three to six months of expenses based on your average monthly spending.
3. Maximize your tax benefits
Saving for retirement comes with tax benefits. Contributions to a 401k or Traditional IRA are made on a pre-tax basis, which means that the contribution is removed from your taxable income and thus reduces the taxes you will pay for the year. Moreover, the first $ 2,500 of the student loan interest you pay each year is tax deductible.
- Set specific goals
It’s easy to say you want to get out of debt or retire early. But for many people, those words never turn into action.
“Once you decide to invest in retirement, write down a specific plan,” suggests Gobler. “Describe how much you will invest each month. “
And make it automatic. Setting up automatic contributions to your 401k, Roth IRA, or other retirement investment vehicles gives you one less thing to worry about.
Dunlap said she uses visualization: “Imagine yourself, at 65. Fantasize about how amazing you will be as a retiree. People who create visual goals are more likely to achieve them, so make your better to imagine what your ideal retreat would be like. “
Mistake # 2: tap into retirement savings
The pandemic has shown us that life can be unpredictable. Last year’s CARES law responded to economic hardship caused by the COVID-19 pandemic. In 2020, retirement savers could temporarily make penalty-free withdrawals from some pension plans for coronavirus-related expenses.
An investigation revealed that retirement planners Withdrawn large sums: 32% of respondents reported withdrawing $ 75,000 or more from a retirement account, while 58% of those who took out loans borrowed between $ 50,000 and $ 100,000.
Besides covering the expenses of daily living, people used the money for various expenses:
- 41% put it to medical fees
- 32% of home repairs funded
- 26% paid for auto repairs
- 23% of tuition fees covered
- 21% helped family members
There are many valid reasons to dip into your retirement savings early. However, to stay on track, Debbie Macey, Senior Financial Advisor at Personal Capital, recommends avoid the mindset that your retirement money is accessible.
“Think of it this way: rather than putting money aside, you ‘pay it up front’,” she said. “So before you take any money out, ask yourself: do you really need the money now? ”
Plus, don’t just keep that conversation in your head, advisers say. Talk to both the experts and those who know you best.
Mistake # 3: not talking about retirement
A recent survey on Love & Money have found that people put off important conversations about money with their significant other. More than half (58%) of Americans polled said they would not talk about their retirement plans outside of marriage. Of these, 12% think it is never appropriate to discuss post-work plans.
Lacey Cobb, director of consulting solutions at Personal Capital, says the conversation doesn’t have to get too heavy. If your relationship has reached the point where you can spend your future together, you can discuss budgeting and generally saving for the future.
“That should be the goal: to plant the seed and start early in general to set yourself up for success in the future,” she advised.
While navigating the conversation with your significant other, the Personal capital retirement planner could be a valuable tool in aligning you both with your vision for the future. Almost 3 million people are using this technology to see what they can do to improve their chances of success in retirement. With your partner, you can run through different scenarios, see how your plans would have gone during historic market downturns, and get a spending plan for retirement.
In addition to discussing retirement with a loved one, people with complex financial lives may be advised to consider consulting a financial advisor.
More than half (52%) of American workers agreed that after all the uncertainties of 2020, they are seeking more advice on their financial strategy this year, according to a recent poll. This includes seeing a financial advisor, either for the first time or more often, or even taking advantage of the resources of the workplace.
Young people are much more likely to seek advice: 64% of Millennials and Gen Z respondents plan to seek more advice, while only 38% of baby boomers said they ask for more help.
One of the most important roles of a Financial Advisor removes emotions from financial decisions. When a person has worked for years to accumulate personal wealth, only to see it fluctuate during market volatility, emotional detachment is not always easy.
“Sometimes it’s hard to ignore all the noise of people telling you what the market is going to do next and what you should buy or sell,” said Craig Birk, chief investment officer at Personal Capital. “Working with a good financial advisor will give you an objective person to call when you’re scared or unsure of what to do. “
About the Author
Kyle Ryan is a member of the Investment Committee of Personal Capital Advisors. He is also executive vice president responsible for sales, customer service and investment operations for Personal Capital Advisors. Previously, Kyle held executive positions with Merrill Lynch and Fisher Investments. At Fisher, he was responsible for managing almost every aspect of the organization, including all global business operations, investment research, portfolio implementation, and high net worth sales. Kyle graduated with honors from the University of California, Los Angeles.
This content is for informational purposes only and does not constitute investment advice.
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