Chances are, if you are a fan of NASCAR or the Indy Racing League (IRL), you know what safer barriers are. The Steel And Foam Energy Reduction (SAFER) barrier was designed by a team of engineers in collaboration with NASCAR and the IRL. These barriers are designed to absorb the dynamic energy that is released when a race car, traveling at a high speed, crashes into a concrete wall. The first SAFER barrier was installed prior to the 2002 Indianapolis 500 and subsequently at all NASCAR high speed oval racetracks. The barrier dissipates the energy of the crash through a larger section of the wall, a) helping protect the driver of the car, b) reducing the damage to car itself, and c) protecting other drivers by not propelling the wrecked car back into traffic in the race.
Perhaps, as you examine the values of your retirement plan accounts, you wish there had been a SAFER barrier for your finances. In early 2020, the economy was moving along nicely, but there were always warnings that a “Black Swan” event could change things quickly. During February, it became evident that the coronavirus COVID-19 was indeed going to be just such a black swan. Financial markets went into turmoil as investors and the public began to understand the future impact of nearly 40 million people becoming unemployed and the loss of consumer activity.
Now, we wonder how long the recovery will take? The markets have recovered somewhat as they look forward to businesses opening, at some level, across the USA. However, we do question how long the recovery will take and if the damage done to our retirement plans can be repaired! Let’s take a look at some ideas of actions we can take that may be able to reduce the damage of the crash and get our plans back on track at some point in the future.
- If you have not yet retired…
- DO NOT TOUCH YOUR SAVINGS! You may be tempted to use your emergency fund if you your employer has reduced overtime or if you are unemployed. Don’t touch your savings if avoidable. The CARES Act included a provision allowing you to withdraw up to $100,000 from your retirement account penalty free. While that provision was an act of compassion, it is not in anyone’s best interest to do so unless it is absolutely necessary. Withdrawing money when market values are lower is accompanied by very bad consequences over time. Ask your mortgage company, landlord, utility company, or auto lender if payments may be altered to help in the crisis. This is never pleasant, but it infinitely better than spending savings.
- Keep funding your retirement if at all possible. The more you contribute now, while investment values are lower, will produce greater benefits in years to come. Maintaining contributions now will help repair the dents and scrapes in your retirement and have your plan back on track much sooner than you may imagine!
- If you have already retired
- Trim your withdrawals from retirement accounts if possible! Many people enter retirement with a plan of withdrawing a set monthly amount from their IRA, 403(b), or 401(k). This plan looked sound before the February market plunge but continuing to withdraw the same dollar amount while investments are down makes it MUCH harder for the account to rebound when the economy improves. Reducing the amount withdrawn today means your funds will be higher later and last longer.
- DON’T TAKE YOUR REQUIRED MINIMUM DISTRIBUTION if possible. There are two possibilities for this. 1) The SECURE Act passed earlier in 2020 changed the beginning age for RMDs from 701/2 to age 72! If you were born after June 30, 1949 and you do not need the funds, do not begin taking RMDs until necessary. 2) The CARES Act waived all requirements to take RMDs for the year 2020. If you have already taken a RMD for 2020 and wish you had not, you may be able to roll it over into an IRA under certain circumstances.
The year 2020 has been something of an emotional rollercoaster. No one has come through the coronavirus pandemic, the market volatility, and the orders to stay at home unscathed. Today, we have offered a few ideas that may help erect a SAFER barrier for your retirement. Please check with your financial advisor about the specifics of how any general suggestion should apply to your specific situation.
Here is to living financially and emotionally free and pursuing your passions!