The COVID-19 pandemic has devastated the global economy over the past year. Many people have suffered extensive personal financial hardships as a direct result of the pandemic, from losing jobs to home foreclosures. Rent has gone unpaid, mortgages have stalled, cars have been repossessed, medical debt has flourished, and more due to people being unable to work either because of lockdowns or job loss.
Unsurprisingly, many have found it difficult to pay bills and have had to take funds from their 401(K) or IRA retirement accounts to stay solvent. The pandemic has affected retirement savings accounts in the following ways:
1. Less savings going into retirement accounts
Without jobs, people have not been able to contribute to their retirement accounts. If there isn’t any money coming in, then people simply cannot put any away for later. Job loss, furloughs, reduced hours, and pay cuts have all contributed to people putting less money toward retirement. Additionally, the passage of the CARES Act allowed people to withdraw funds or take loans from their retirement accounts without penalty. While this was vital for pandemic survival, it ultimately reduced the amount of money in retirement accounts.
2. Less spending
Lockdowns and quarantines forced people to stay home. Without the option of going out, people spent less money on vacations, gym memberships, salons, amusement parks, movie theaters, and more. Some people had to use the unspent money for everyday necessities, such as food and rent. However, for those who could continue working from home, this unused money might be a significant amount that can be reinvested into retirement accounts.
3. Emotional decision-making
Pandemics are stressful, and stress leads to decisions being made based on the immediate situation. A health crisis related to COVID-19, childcare needs, choosing to relocate to a less expensive area, and more can cause people to stray from their long-term financial plans. Retirement accounts suffer when people must use their money for urgent needs, many of which have a strong emotional component. While it is not always possible to stick to the original financial plan, people who are able to do so will ultimately feel more in control of their situation.
Whatever one’s finances look like currently, it is vital to remember that it is always possible to get back on track and start putting money into retirement accounts.