Retirement and the COVID Crisis

The COVID-19 pandemic has likely affected most retirement plan balances and people’s ability to save monthly. But the hardest hit were retirees or those nearing retirement.

Boomers at Risk

Unfortunately, retirees and older workers have little time to recover portfolio losses. Some nearing retirement may have experienced permanent job loss, forcing them to tap retirement savings, claim Social Security benefits or even retire earlier than planned leading to permanently reduced income.

Generally, most people should try to avoid accessing retirement funds early. However, if you must tap your retirement accounts due to the pandemic the CARES Act included several tax breaks that may be helpful:

• The CARES Act waives the usual 10% early withdrawal penalty on coronavirus-related distributions taken from IRAs and 401(k)s before age 59 1/2 in 2020.


• Coronavirus-related distribution income can be spread out over three tax years – potentially lowering your overall tax hit. However, it may make sense to report the entire distribution this year if your estimated income for tax year 2020 is unusually low.


• If your 401(k) plan allows for employee loans, the CARES Act doubled the amount you may borrow from $50,000 to $100,000 in 2020.

Know that these tax breaks will expire December 31, 2020, unless Congress acts to extend them.

Take Action

For most people, the best path is the same as always:

Stay the course with your investments. Remember that markets have historically recovered and reached new highs.* You do not want to miss out on the upswing, so maintain an asset mix in your portfolio that’s appropriate for your needs, goals, time horizon and risk tolerance. This may require that you work with your financial professional to assess your situation and rebalance your portfolio.

During stressful times like these, it is important to reign in emotions so as to prevent making bad decisions. Work closely with your tax and financial professionals to help focus your savings and tax strategies toward a financially secure future.

*https://www.morningstar.com/features/what-prior-market-crashes-can-teach-us-in-2020 . Past performance does not indicate future results.