The COVID-19 pandemic that started late 2019 is still as deadly and as widespread as it was at the beginning of the year. It is not news that the pandemic has affected almost all sectors, one of which is the financial sector. You must, however, ensure that the pandemic does not affect your retirement plans. This information on retirement will help you. The following are costly mistakes you must avoid during the pandemic to safeguard your retirement plans.
Neglecting your Emergency Fund
A lot of people were unprepared for all that has happened this year. If there is anything we have learned from this pandemic, it must be the need to prepare for emergency situations. The first step towards adequately preparing for your future after retirement is to keep adding to your emergency funds.
We realize that the pandemic might have affected your earning in one way or the other, it is still absolutely necessary to keep padding your emergency funds out of what you have. If you are trying to cut costs, do not try to tamper with your emergency funds. During retirement, people experience emergency health needs, car repairs, house repairs, and other urgent needs. Your emergency funds will come in handy at these times.
Making Unimportant Withdrawals
Unnecessary, irrelevant, and impulsive withdrawals for your retirement funds will also have negative effects on the future you are preparing for. Making unnecessary withdrawals from your retirement funds will attract huge tax penalties and a substantial reduction in your retirement funds.
Though the CARES Act will save you from paying the 10 percent penalty for early 401(k) withdrawals on amounts up to $100,000. Bear in mind that the waiver is only temporary. It is important to examine other options first before dipping your hands into your retirement funds.
From 2021, money that is withdrawn from all IRAs will have income tax deductions. A financial advisor will help you evaluate all other options. You can also benefit from relief programs in your state or local government. If you have to tap into your emergency fund, make sure you find a way to replace it.
Making Bad Investment Decisions
As a result of the pandemic, the finance world is in an uproar. You have most likely been hearing about the rise and fall in the stock market, an increase in the rate of unemployment, and other pandemic related news. Do not make investment decisions based on panic and uproar. Always work with your investment advisor to make great investment decisions. Investment advisors will help you make decisions based on personal goals and not panic-driven investments.
Neglecting to Reexamine your Expenditure
The pandemic might have reduced your expenses in one way or the other. You are most likely saving gas money because you work from home. The money you used to spend on drinks on night outs with friends and other of such cuts in expenses should all be diverted into your retirement funds. The extra funds might seem little but will become quite substantial over time.
Neglecting Legislative Changes
The CARES Act which was passed on March 27, 2020, offers substantial benefits for those who have retired or about to retire. The Act made provisions for a waiver of the 10% tax penalty for COVID-19 related withdrawals from 401(k) accounts up to $100,000. You may benefit from this if:
- You have contracted Covid-19.
- You have an immediate family member that has contracted Covid-19.
- You have been laid off or given unpaid leave leading to financial difficulties.
- You run a business that has stopped or reduced operation.
- You fall into other categories accepted by the IRS.
Furthermore, RMDs, Required Minimum Distribution will not be applied for the rest of the year. If you do not have pressing needs, it is advisable to leave the money for more interests and fewer tax deductions. As a rule, be aware that you must not invest all your funds in one portfolio.