4 Ways to Maintain Your Retirement Timeline During Economic Chaos
- Author: Mary Singleton
- Posted: 2024-06-09
Many have watched their retirement accounts take a hit as the economy has suffered in the COVID-19 pandemic. In addition, there will likely be an economic overhang that will keep these accounts from gaining in value for some time. Many people are looking at the carnage in their retirement accounts and the other economic hits they have been taking and are wondering whether they COVID-19 will keep them from retiring on their timeframe. With the proper planning, you may still be able to retire on time. Here are four ways to keep your retirement on schedule.
Do Not Touch Your Retirement Account
The CARES Act created an incentive for people to borrow from their retirement account as necessary if they find themselves in financial trouble. As a result, many people are looking at their retirement accounts as a cheap source of financing when they run into trouble. For some, this may be a worthwhile alternative when they have no choice.
However, you should find a way to cut down or do whatever you can to avoid having to raid your retirement account during this time. Even if you are able to put back what you borrowed in the future, using your retirement money pulls it out of the market. Thus, if there is any bounceback or rally in the stock market, you will miss out on it.
In addition, once you take money out of your account, you may end up with a different mindset. You can lose focus on your retirement saving and end up falling further behind. Thus, taking a loan from your 401(k) or even cashing in some of your retirement should be your option of last resort.
Avoid Taking on High-Interest Debt
Even if you find yourself short and needing to borrow money, you should look last to credit cards. Ending up in debt with interest rates will mean that you need to pay it down at some point. This will siphon off valuable funds that could otherwise be going towards retirement.
It is high-interest debt that begins the cycle of debt that traps you in it for what seems like an eternity. The key is to be strategic about what debt you take on right now. If you find yourself having to borrow money, try to transfer over some of your existing debt to a new card taking advantage of a zero or low-interest transfer offer. If you are able to take advantage of the low interest rates, try to get a debt consolidation loan to save some of your interest rate expenses.
Keep Putting Away for Retirement
You may be tempted to slash or eliminate your retirement contribution as a way to save money. Alternatively, you may be afraid of the markets and are hesitant to invest any kind of money in the stock market.
If your employer has any type of 401(k) match, you are leaving money on the table if you stop putting away in your retirement. This is free money that you are leaving on the table. Even if your employer has suspended or lowered their match, there are still tax benefits of saving for retirement that you would be forgoing. This is why you should find other ways to cut back as opposed to stopping your retirement contributions.
Be Proactive with Your Retirement Investments
One of the reactions that some people may feel when they see the market dropping is shellshock and panic. They will then freeze when it comes to retirement investing.
When the market is dropping fast is actually the time to invest because you are getting solid investments on sale when others are panicking. When stocks are in a rout is actually the time that you want to rebalance some of the investments in your portfolio to take advantage of the cheaper prices.
For example, if you are holding bonds in your account, you may want to lighten up on some bonds with the thought that their price has already appreciated. Then, you can switch some of your allocation to stocks so you can take advantage of the coming rally.
If you are investing in your IRA, you can sensible buy stocks on sale. The price appreciation when the economy recovers can help make up for some of the money that you have lost. In other words, your investing profits can help keep your retirement timeline proceeding as planned.
