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How will COVID-19’s Impact on Financial Markets Affect My Retirement?

March 27, 2020

How will a market crash affect my retirement? Who should I talk to? How do I keep my financial future secure?

This post is designed to answer some of these daunting financial questions and provide insight on how to address the recent financial market downturn. If you own a company and sponsor a retirement plan, check out our other article with answers to many of your most pressing COVID-19 and market-related questions!

On March 9, 2020, the United States witnessed one of the sharpest market crashes in modern history. The Dow Jones Industrial Average fell 2,013.76 points, nearly 7.9% on that day alone. The initial decline was swiftly followed by two additional record-setting drops on March 12th and March 16th. These unprecedented shifts in the stock market are directly correlated to the global outbreak of the Covid-19 virus also known as the Coronavirus.

Review Your Plan

For those who already have a retirement plan in place, stay committed to your retirement plan. The plan you have in place was likely created to withstand any drastic shifts in the market. If you are experiencing any degree of uncertainty regarding your current strategy, now is a great time to speak with a qualified financial advisor. If you do not have a financial advisor, or have concerns with your current financial plan, be sure to check out some of our other blog posts on what to ask and how to choose a potential investment advisor!

Stay the Course

If you are planning to retire 8-10 years from now, financial professionals recommend that you do not allow the initial shock of a market crash to influence your current retirement strategy. Economists predict that the 2020 market crash will behave similarly to the 2001 crash that followed the events of 9/11. While the original drop in the market was substantial, the economy managed to recover relatively quickly. With that said, draining your accounts right now would generally not be recommended. Regardless of how bad the market looks at the moment, it’s widely suggested that the greatest mistake for an investor to make at this time is to buy high and sell low. In other words, do not let the fear and anxiety of the current economic state dictate your decision to sell your investments at low prices and settle for losses. Instead, be patient! Allow the market to recover, as expected, before making any major decisions regarding your finances.

Start the Conversation

If you haven’t started planning your retirement, now’s the time! Don’t postpone any longer, use this opportunity as a wakeup call and get in contact with a financial advisor. The sooner you start contributing to your retirement portfolio the more money you will accumulate in the long run. Professionals advise that saving for retirement becomes increasingly more difficult as time goes by. As people grow older, they typically start families, buy houses, drive nicer cars, and purchase other amenities to improve their lifestyle. The drawback being that all these additional payments make allocating money towards a retirement plan significantly more difficult.

If you have a company sponsored retirement plan (e.g. 401(k), SEP/Simple IRA, etc.) and haven’t done so already, speak with your employer about the benefits available through your current retirement plan. While taking money out of your retirement plan early typically results in an IRS mandatory 10% early withdrawal penalty, the economic stimulus bill making its’ way through Congress does include provisions that would waive certain penalties and taxes for withdrawals from your retirement plan. Inquire, with your employer, about the ability to take a participant loan or in service withdrawal from your retirement plan. The economic stimulus bill, if passed, would increase the amount of an available participant loan from $50,000 to $100,000, depending on how much vested monies a participant has in their account. Another option may be to take a hardship withdrawal from your 401(k) or 403(b) Plan at your current employer, although not all employers offer hardship withdrawals or even allow you to take out loans from your retirement account. Check with your benefits department to learn about your employer’s policy.

If you sponsor a retirement plan at your company and need to know the latest updates and recommendations based on your changing priorities and needs – we are here for you! On our COVID-19: Frequently Asked Questions Page, you can look forward to updates from us on changing government policies that result in relief for company sponsored retirement plans, helpful tips, and resources for navigating your plan during these uncertain times.

For more information on how to remain ahead of the curve and preserve your financial health, check out our blog.

For more tips and information regarding retirement plans, contact us.

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About The Author

Keyvan Khaki is a student at the University of Washington School of Business. He is a Brand Content and Marketing Intern at Leading Retirement Solutions. For more information on Keyvan and the work he is pursuing, be sure to check out his LinkedIn. 

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