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Handling your retirement funds in the COVID-19 pandemic

Senior couple with a consultant

Sometimes, even the best retirement savings plan can be upended by crises – the pandemic has shown that anyone can be caught off-guard by health issues and job insecurity. But there’s hope. Here are a few tips for handling your retirement fund during COVID-19.

    1. Stay the course

If your income has remained intact during the crisis, you can protect your retirement savings simply by sticking to the original plan. Some advisors suggest that you keep your funds invested even if it seems counterintuitive – after all, why expose your retirement savings to volatility? But most investors will likely benefit just from staying in the market.

From a historical perspective, the market has always gone back up after a downturn. The past can be an indication of what might happen in the future. If you pull your money now, you lose the opportunity to regain any amount that you may have lost during the downturn.

Talk to your financial planner and adviser for the best course of action based on your unique circumstances.

    1. Go back to your IPS

An Investment Policy Statement (IPS) is a document typically drawn up during a calm market that serves as a guide for the investment process during a volatile market. It outlines your goals and the level of risk that you’re comfortable taking on.

Once finalized, the IPS should be changed if there are any changes in your personal circumstances, but not when there are changes in the market.

It’s natural for investors to try to revise their IPS when things go awry, but experts believe that taking the conservative route – that is, sticking with your original plan – is generally better in the long run if it’s based on sound strategy.

    1. Keep contributing to your 401(k)

If you’ve managed to protect your income during COVID-19, keep making contributions to your 401(k). More so if you have an employer who matches your 401(k), since you should take advantage of this favorable set-up. Experts also recommend increasing contributions if you’re financially capable.

    1. Don’t take out a 401(k) loan or make withdrawals

Don’t dip into your retirement savings during this time. If a major expense comes up, look into other sources, such as your emergency fund.

A 401(k) withdrawal can be subject to income taxes and leave you with less money for retirement. It can also be difficult to recover any amount pulled from your retirement savings because those funds grow with time, and the potential earnings can exceed contributions you’ve made out-of-pocket over the years.

A 401(k) loan, on the other hand, typically has to be paid off within five years or less if you become unemployed.

    1. Build your emergency fund

Aside from protecting and growing your retirement fund, experts also recommend building your emergency fund during a crisis. When you have a robust emergency fund, you can stay on top of unplanned expenses without incurring debt or dipping into your retirement fund. Adding small amounts to your emergency fund can make a difference over time as those contributions accumulate.

    1. Apply for assistance

If you’ve lost your main source of income, or if your income has been reduced as a result of COVID-19, you may be eligible for government assistance, low-interest loans, and benefits under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

You can also try negotiating with lenders, creditors, and landlords to either delay or spread out any remaining payments.

Although the CARES Act relaxed the rules on 401(k) withdrawals and loans, this should only be your last resort if you need cash.

Protect your retirement – and your congregation – by planning your funds accordingly. A.D. Advisors specializes in the sale of church-owned properties throughout the United States and Canada. We understand the unique concerns of church leaders and members as they prepare for retirement. You can contact us here. You can also message A.D. Advisors at Info(at)ADAdvisors(dotted)org and 630.606.9000.