It’s clear that the economic downturn caused by the coronavirus has hit young people hard. Many of them have yet to find their financial footing, and are working jobs that are less lucrative and more prone to layoffs.
However, this time of instability is also affecting Americans at the age of retirement. According to MarketWatch, the unemployment rate for workers 55 and older jumped to 13.6% in April. And even those lucky enough to still have a job may be wondering if the retirement they’ve worked so hard for is now out of reach entirely.
Whether you’ve been saving for decades so you can book a one-way ticket to a beach in Florida, or you’re already drawing on your 401(k), let’s take a look at four very real ways the coronavirus could affect your retirement:
4. The Coronavirus Could Pad Your Portfolio
Although the stock market took a huge hit in mid-March, it’s recovered quite nicely. In fact, the S&P recently climbed back above where it began the year. But it could still be beneficial to sink some money into industries particularly affected by the coronavirus pandemic.
One of the oldest tricks in the book is to buy low and sell high. If you have the funds, consider making some strategic investments that could mean a big payday for you down the line.
But most of all, don’t let the coronavirus scare you away from investing. The rapid recovery of the stock market teaches us that panic-selling is not the way to respond to a market crash. The market will always fluctuate, so sticking to your guns when things are looking rough is the best way to come out on top. Continue to build and diversify your portfolio, and you’ll see the benefits in the long term.
Related: 5 Defense Stocks You Should Buy Now
3. Your Liquid Assets Will Take a Hit
At first glance, you may be scared that you don’t have enough liquid assets in the face of a recession. But retirement accounts aren’t the only things being affected.
You may have noticed that the interest rate on your savings account has dropped. In the U.S., high-yield savings accounts are tied to the federal funds rate — and since the federal funds rate has decreased, so has the interest rate for pretty much every bank in America.
For example, the annual percentage yield at Ally Bank — an online bank known for its competitive savings rate — took a dip in May; what was a 1.50% APY lowered to 1.25%. And while 1.25% is still considered very good in the world of savings accounts, it’s a drop that will affect your earnings.
One way to mitigate this is to move any unneeded assets into a higher-yield money market or CD account. Although, you may be hard pressed to beat Ally’s savings rate, or rates at other popular online banks. If you currently have a low-interest savings account, it may also be time to consider moving your money to a bank like Capital One or Ally.
Keep in mind that experts recommend having an emergency fund that will last you at least six months in the event of unemployment or a similar crisis.
2. Your Non-Liquid Assets Will Take Time To Recover
Then, of course, there are your retirement accounts. Whether you just have a trusty old 401(k), or multiple types of IRAs, you’re bound to have noticed the impact that COVID-19 has had on them. More specifically, what a severe and sudden economic downturn does to non-liquid assets.
If you were planning on retiring anytime soon, this may mean you have to delay that retirement. Retiring before your accounts have the chance to rebound could be detrimental to your finances in the long run. But rest assured that they will recover. And continuing to work will only give them the chance to grow more.
Most of all, don’t stop contributing to your 401(k), and certainly don’t cash it out. Even though the CARES Act temporarily got rid of early withdrawal penalties, you’ll still miss out on vital interest earnings if you take your funds out. Not to mention the free money you’ll be missing out on if your employer matches.
If you are already retired, this may be the time to reorganize your budget. If you can cut down on expenses for a limited period of time, it could help you out a lot down the line. Also, consider holding out on Social Security until you can take advantage of bigger monthly checks.
1. Social Security Benefits Could Decrease or Stop Entirely
If the economy takes a long time to recover, the Social Security program runs the chance of stopping completely. As it is, no one knows the long-term effects of the coronavirus, and the disappearance of Social Security checks is a worst-case scenario. But it’s not out of the question.
Social Security, for some, is the cherry on top of the retirement sundae. While it’s not a ton of money, it can mean the difference between a vacation twice a year or not. For others, Social Security is their only hope for retirement. So why would it ever go away?
Well, it’s pretty simple math: Payroll taxes fund Social Security. When a lot of people are out of work, they aren’t paying payroll taxes. So, in the event of mass unemployment, the only thing keeping Social Security afloat is a $3 trillion trust fund that bridges that gap in cost.
This government trust fund was set up to cover the costs that payroll taxes can’t. Before the pandemic struck, it was predicted to last through 2035, after which retired Americans would only receive 75% to 80% of the benefits. But if the economy endures prolonged suffering, that date could come a lot sooner, and the benefits much lower.
Despite the uncertainty of these times, Americans should refrain from religiously checking their retirement accounts or making any rash money decisions. On average, bear markets last around a year, and the U.S. has recovered from every single one (spoiler: there’s been a lot. Twenty-five, to be exact).
History dictates that continuing to invest and pad your retirement accounts at a normal rate is what will get you through a bear market. In short, be a good man (or woman) in a storm. And if you’re lucky, you may even see bigger returns as a result.