One in seven Americans are now planning to delay retirement plans post-pandemic due to COVID-19, per new research from Smart USA. Why? “The financial effects of the pandemic have had a real impact on the lives of those approaching retirement,” explains Catherine Reilly, Director of US Retirement Solutions at Smart USA.
To understand how we got here, let’s take a big step back to March 2020. The world shut down. People lost their jobs. Salaries were slashed. For many, dipping into retirement accounts, like 401(k)s and IRAs, was necessary to pay for necessities like rent and food. Unfortunately, when we tap into retirement accounts early, our money that’s removed from the account is no longer growing toward our future, and we’re often hit with penalty fees and high taxes, depending on the circumstances.
Not only did more Americans access the money in their retirement accounts during the pandemic, information from Smart UK’s Smart Pension Master Trust shows many took a “pause” on their retirement contributions in March 2020 — while these people weren’t necessarily pulling money out of retirement accounts, they also weren’t putting money in. This was likely due to salary reductions or layoffs, or perhaps a spouse losing income — all situations in which Americans needed access to the money they had coming in, and couldn’t spare to feed their retirement accounts.
But the “pause” option was a success for those who utilized it — they allowed their money to grow without interruption, and they still paid their bills. Per the Smart USA survey, many people who took advantage of the pause option in March 2020 started their contributions back up again in either November 2020 or February 2021.
If you hit “pause” on your retirement contributions, the good news is that even though you missed the opportunity to contribute for those months, the effects shouldn’t be long-lasting when we look at the bigger picture and you can get post-pandemic retirement contributions back.
If you opted out on retirement contributions, the most important thing you can do now is start contributing as soon as you’re able says Reilly. If you can, contributing at an even higher rate than you were before can help you play catch-up even faster.
And if you took out a loan, work toward paying yourself back in that same account. If you can do that while also keeping up with contributions, you’re golden.
TO DELAY OR NOT TO DELAY
When looking at the 14% of Americans who have chosen to delay their retirement date due to COVID’s impact, you may be asking yourself, “Should I be doing the same?” Maybe.
“Delaying retirement is one of the most effective ways of making up for a shortfall in retirement savings, as it gives you more time to save, more time to earn returns on your existing savings and a shorter time in retirement to fund. Social Security payments are also higher the later you claim them, which is another reason to delay retirement,” says Reilly.
In fact, the average age of retirement is on the rise, and 56% of people now view retirement as a “multistage transition,” rather than a one-off event. A great way to consider delaying retirement is to continue working part-time, which 31% of survey respondents say they expect to do or to supplement your retirement income with other investments.
But whether this option is right for you has everything to do with your overall financial picture. How much of your retirement savings did you miss out on during COVID-19? Do you have enough currently to stay on track to retirement post-pandemic? How much will adding a few extra years of work help you out? Can you work part time?
By answering these questions, and working with a financial advisor, you should be able to figure out the perfect plan for you and your retirement.
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