retirement

Don’t Let COVID-19 Derail Your Retirement

Yes, many of us have taken a big hit. Stick to your principles — and be flexible.

Since the stock market’s coronavirus-related meltdown, I’ve tried to avert my eyes from the train wreck that doubles as my family’s retirement plan—brokerage account, 401(k), Roth IRA, you name it. My next meet-up with our financial adviser will be a first: a virtual session. I tend to like to do these things in person, but that’s changed for now, thanks to … well, you know.

I’m sure the planner will have some nice gloss to paint on things, but we all know that thousands of dollars have fallen away from what we planned to spread out over our retirement years. What to do?

Review your Social Security strategy. Social Security will likely be a pivotal part of your retirement income. That’s why it’s important to plan when you’re going to start drawing from it. The good news is that it’s a constant; that part of your income will not go down. You can start taking it at age 62, but your benefits will be permanently reduced by 25% or more. Full retirement age, when you’ll get your full benefits, is 66 if you were born between 1943 and 1954. If you can afford it, wait until age 70 to claim benefits. Social Security benefits increase 8% a year if you wait until then to take them.

Consider a Roth conversion. If your retirement savings are heavily invested in tax-deferred accounts, such as 401(k)s and IRAs, you may want to take advantage of their diminished value and convert to a Roth IRA. You’ll pay the taxes now instead of in retirement, and your tax bill will be based on the value of your account when you convert.

“Let’s assume that you were planning to convert $100,000 in 2020 and that $100,000 is now worth just $70,000,” says Evan T. Beach, wealth manager at Campbell Wealth Management. “Converting the lower amount will not only lead to a lower tax bill but also allow the $30,000 rebound, whenever it comes, to be tax-free.”

Delay major expenses. Financial advisers say we should put the brakes on major expenses, including kitchen and bathroom remodels, while we give our portfolios some time to recover. If you’re already retired, putting those expenses on hold will help you avoid taking withdrawals from a depleted portfolio. And if you’re close to retirement, you’ll be able to increase the amount you’re saving.

I’m still driving my 2009 Honda Accord, which I bought new in January 2010. This is by far the longest I’ve held on to a car, and the itch for something new and a bit flashier is palpable. But we have a newer car in our family, which my wife drives. And I don’t really travel that far or even daily in my Accord. I’m putting what would have been a monthly car payment to better use—including saving more for retirement.

Follow the 4% rule. If you’re a near-retiree or recently retired and you have a well-balanced and diversified portfolio, you should be in a good position to use a strategy known as the 4% rule.

It works like this: You withdraw no more than 4% of the beginning balance in your savings every year. Increase the amount of your annual withdrawal by the previous year’s inflation rate. For example, if you have a $1 million nest egg, withdraw $40,000 the first year of retirement. If inflation that year is 2%, in the second year of retirement you boost your withdrawal to $40,800. If inflation jumps to 3% in your second year of retirement, the dollar amount for the next year’s withdrawal also rises by 3%, to $42,024. This formula has its critics—some think it’s overly conservative, while others believe it’s too risky—but it has held up through other tumultuous periods, including the Great Recession of 2008–09.

Most Popular

Dying Careers You May Want to Steer Clear Of
careers

Dying Careers You May Want to Steer Clear Of

It’s tough to change, but your job could depend on it. Be flexible in your career goals – and talk with your kids about their own aspirations, because…
September 13, 2021
7 Best Commodity Stocks to Play the Coming Boom
commodities

7 Best Commodity Stocks to Play the Coming Boom

These seven commodity stocks are poised to take advantage of a unique confluence of events. Just mind the volatility.
September 8, 2021
5 Top Dividend Aristocrats to Beef Up Your Portfolio
dividend stocks

5 Top Dividend Aristocrats to Beef Up Your Portfolio

The 65-member Dividend Aristocrats are among the market's best sources of reliable, predictable income. But these five stand out as truly elite.
September 14, 2021

Recommended

Child Tax Credit Payment Opt-Out Deadline is October 4
Tax Breaks

Child Tax Credit Payment Opt-Out Deadline is October 4

The next deadline for opting out of the monthly child credit payments will be here soon. Use the IRS's Child Tax Credit Update Portal to unenroll.
September 23, 2021
How and When to Opt-Out of Monthly Child Tax Credit Payments
Tax Breaks

How and When to Opt-Out of Monthly Child Tax Credit Payments

If you want to stop advance payments of the 2021 child tax credit, you have to opt-out using the IRS's online tool before the monthly deadline.
September 22, 2021
Child Tax Credit 2021: How Much Will I Get? When Will Monthly Payments Arrive? And Other FAQs
Coronavirus and Your Money

Child Tax Credit 2021: How Much Will I Get? When Will Monthly Payments Arrive? And Other FAQs

People have lots of questions about the $3,000 or $3,600 child tax credit and the advance payments that the IRS is sending monthly to most families – …
September 22, 2021
How to Change Your Address for Monthly Child Tax Credit Payments
Tax Breaks

How to Change Your Address for Monthly Child Tax Credit Payments

If you're receiving paper checks in the mail for your child tax credit payment, you can use the IRS's online portal to update your address.
September 22, 2021