Retirement Planning Mistakes to Avoid in the Era of COVID-19

There is no denying that the COVID-19 pandemic has impacted the financial security of many Americans, as well as becoming a stress test for retirement planning and saving. If this health and financial crisis changed your retirement plans or has left you feeling less secure in your retirement savings, you’re not alone. Though the economy is recovering, and things are beginning to normalize as vaccines roll out, it may take a bit more time to get your retirement plan back on track. Below we will discuss five mistakes to avoid so you can strengthen and protect your savings now and into the future.

Don’t Retire Too Soon

It can feel defeating to move your retirement date further out into the future, especially if you were just a year or two away when COVID-19 struck, but exercising patience and perseverance could be key to fortifying your retirement nest egg. If you were furloughed or laid off during the pandemic, it can be enticing to call it quits and take early retirement. Push back against this urge; the longer you can hold off, the healthier your retirement finances will be.

Examine your options for remaining in the workforce a bit longer than planned so you can continue saving. If you have lost work due to the pandemic, talk to your employer about the options of working by contract, moving to part-time, or even taking a pay cut. If these don’t fit your needs, consider finding work in the gig economy with sites like Fiverr or TaskRabbit where flexible work can help you continue earning and saving.

SEE ALSO: Six Ways to Use ‘Self-Continuity’ to Strengthen Your Retirement Plan

Don’t Collect Social Security Too Soon

Each year you delay taking Social Security until age 70 can be a real boon for your retirement finances. With an 8% increase for each year you wait, delaying even just one more year could put you at a significant advantage. Though you are permitted to begin collecting benefits at age 62, waiting until you’re 70 to collect means you’ll reap 25% to 30% more from your benefits.

Think about whether you can use other assets at your disposal to create a financial bridge that will allow you to delay collecting Social Security. Consider tapping into your emergency fund or savings account if it can help you maximize your future Social Security benefits, or revisit your budget and cut spending where possible to help you meet your retirement income goals.

Don’t Make Emotional Investment Decisions

The COVID-19 crisis was unprecedented in modern times, and a crisis is often a dangerous catalyst for making emotional investment decisions. Now more than ever, it’s important to take a step back and weigh the pros and cons before making any big investment moves. Extraordinary times like these are when we are the most vulnerable to emotional decision-making, and you want to avoid snap decisions that could negatively impact your future financial health.

If you have a long-term investment plan in place, you’ll likely be best served by staying the course. However, if you feel you need to make changes, ensure the majority of your income is from protected sources first. In retirement, this could be coming from Social Security, if you’ve already begun collecting it, or it could be from another steady source like a pension or annuities. These stable and protected sources of income will ideally cover all your cost-of-living expenses in retirement, as well as help you pay off any remaining debt. You can use the investment accounts for any of your discretionary spending. In this case, if the market does take a downturn or is hit especially hard by a new COVID surge, you know you’ll still be able to afford the essentials.

Don’t Skip Health Insurance

If you’re trying to get your budget or retirement savings plans back on track, it can be tempting to cut out larger expenses, such as health insurance. However, a public health crisis is not the time to go without the health care services you need. Having an unexpected health issue and not having coverage can cause considerable financial damage, and short-term budget savings is not worth the risk of going without it.

SEE ALSO: Eight Steps to Master Saving for Retirement with Your Spouse

Once you reach the age of 65, you’ll be eligible for Medicare, but if you’ve retired or become unemployed before then, you’ll need to come up with an alternate plan for coverage. Several options are available to you if you received health insurance through your employer and it is no longer available. You can choose to continue your coverage through COBRA for a limited time. Due to the pandemic, there is a “special enrollment” period for COBRA; this will give you extended time to find cheaper replacement coverage in the HealthCare.gov marketplace before committing to COBRA. Another option is to find a part-time job that offers health benefits to keep you covered until you qualify for Medicare.

If you are on Medicare or will be soon, keep in mind that it does not cover every medical need. You may need to consider a Medigap policy to cover some of these coverage gaps. Medigap policies can cover dental, hearing, and some preventative care like acupuncture and chiropractic care.

Don’t Throw in the Towel

These are not easy times. A pandemic causes unprecedented challenges in many areas of our lives, including our financial and retirement security. If you weren’t ready to retire yet, don’t let these events force your hand. It may have been a long time since you’ve found yourself without work, but it’s never too late to learn new skills to bolster your resume as the economy fully reopens.

If the pandemic caused you to push your desired retirement timeline, take heart. It doesn’t mean you’ll have to remain in the workforce forever, just that you need to reevaluate your plan and your financial strategy to meet your retirement goals.

Final Thoughts on Retirement and COVID-19

The retirement planning pitfalls above are smart to avoid in any economic climate, including during a pandemic. However, when weathering a crisis, it becomes even more important to avoid money moves that could have a negative impact over the long term. As you work to keep your goals in sight and your retirement plan on track, consider the guidance above, and don’t forget how much you can accomplish with a little resilience, resourcefulness, and grit too.