What To Do About Retirement Savings in a Pandemic

The coronavirus pandemic has totally changed the game when it comes to retirement savings accounts. 

For some, the pandemic has resulted in income loss, which means putting retirement savings on the backburner. Others have been left wondering what, exactly, a market drop means for them as an investor. What’s more, is that the federal government has added new rules for retirement savings.

We’ve received quite a few questions on retirement accounts in both the She Spends Facebook group and in our DMs, so we thought it would help to answer the major ones in this week’s newsletter. Without further ado, the She Spends guide to retirement savings accounts during a pandemic.

What happens to my retirement account if I get laid off? 
If you get laid off or change jobs, one of three things could happen to your employer-sponsored retirement account, according to the National Association of Retirement Plan Participants. 

If the account wasn’t already an IRA, you can roll the balance over into an IRA tax-free. You’d be able to keep contributing to that IRA account moving forward, which is something you wouldn’t be able to do if you kept things as is. You also may have more investment options and lower fees when you move to an IRA. Be sure to do a direct rollover — if you don’t, you’ll have to pay a 20% penalty. 

You can also choose to leave the money in your employer-sponsored account as is. However, if the balance is less than $5,000, your employer may not allow you to keep the money in the account. Instead, they’d distribute that money to you.

You can also roll the money over into your new employer’s plan if you’ve got a new job.

One caveat to all of this is vesting. Some retirement savings accounts have vesting schedules for the money your employer contributes. If you leave a company before the vesting period has ended, you may only get part of the money your employer promised to you or none at all. 

Your company’s employee handbook has the deets on how the vesting schedule works. And this article from The Balance explains things in greater detail.

I have money in my retirement savings account that I really could use right now. What are my options? 
Normally, early withdrawals from retirement savings accounts are penalized, usually at 10%. They’re also taxed at capital gains rates on top of that, so withdrawing money from a retirement account isn’t the typical go-to move for shoring up cash. 

However, the CARES Act changed these rules. If you lost work, are caring for a child, or got sick (or have a sick family member) due to the pandemic, you are eligible to withdraw up to $100,000 from your account without the penalty. 

The taxes you’d have to pay on the withdrawal can be spread over a three-year period following the distribution, too. If you’d like to take a loan from your account instead, you can also repay that over the next three years. 

I still have a job. Should I keep contributing to my retirement account? 
This depends on several factors. If you don’t have an emergency fund, or if what you do have saved feels like it wouldn’t be enough to see you through a few months (if not more), it may make sense to stop contributing to your retirement account, and instead, funnel that money into cash savings. Liquidity is good to have during an economic crisis. 

Similarly, consider your debt. No interest will be added to your student loan balance until September, which could make this a better time for you to work on paying off the loan instead of putting your money to work in the market. Run the numbers and make a decision based on your personal situation. 

Some personal finance gurus like to say that “stocks are on sale” right now, but be wary of viewing the market that way. The truth is that we have no clue whether now is the bottom, or if things could get much worse (and stocks would go even more “on-sale”). 

Keep in mind that when you contribute to a retirement savings account, you are investing. When you invest, you take on a degree of risk, which you are usually — but not always — rewarded for in the long term. 

The market has totally tanked the value of my retirement savings. What do I do? 
Don’t panic! As mentioned above, this happens. Stocks go up, and stocks go down. 

Take a look at this chart, which tracks the S&P 500’s value since its inception in 1927. The index generally trends upward, but there are definite blips. But keep in mind the old investment firm adage: past performance is no guarantee of future results.