If you look at your phone or turn on the TV, it’s hard to miss that the stock market is on a journey worthy of a roller-coaster ride at Canobie Lake Park. But most people knew this was going to happen eventually, even as they put their nest egg away for safe keeping. Like death, taxes and barren toilet paper shelves in supermarkets, there was always going to be that “big down day.”
We all know what’s causing the volatility. No news bulletin needed here. The coronavirus has the world economy in its clutches and it’s squeezing it like some giant stress ball. Unfortunately, we are the ones feeling the stress. We felt it all during the Hong Kong flu, AIDS epidemic, Ebola, swine flu, bird flu, severe acute respiratory syndrome and now the coronavirus. Each caused the market to sputter, but the stock market eventually self-corrected. This is possibly why those folks who chose not to panic during the SARS epidemic in 2003 are now likely sitting happily in retirement on some faraway beach.
So, as events are being canceled, schools are forgoing classes and baseball players are not permitted to do high-fives, it’s only natural that you consider what effect this will have on your future retirement. Hopefully, you have not fallen victim to the hysteria by locking yourself in your basement with nothing but powdered milk and hand sanitizers, leading you to make hasty and irrational financial choices. If history is any indicator – and what else do we have to go on – the world will continue to spin and the stock market will come back to reach new highs in the future. While the coronavirus may be wreaking havoc with stock markets in the short term, it will not likely change much about your finances over the long term.
The best advice I can give at the moment is to stay the course.
Chances are that most people worrying about their retirement are over 60 years old and retired, and most likely their retirement money is invested in annuities. But in these times of uncertainty and unpredictability, annuities continue to shine with less risk and a guaranteed income for life, even as the local news stations proclaim doom and gloom.
You certainly have the option to take money from your retirement account, but even in these trying times it should be a last resort. If your emergency fund is already exhausted and you have no other option, the $2 trillion federal stimulus package offers some breaks to those forced to tap retirement savings early.
For those younger than 59½, the 10% early withdrawal penalty for tapping defined contribution plans such as 401(k)s is being waived. But keep in mind, you need to be experiencing coronavirus-related financial hardship, such as a job loss or COVID-19 illness. The waiver applies to withdrawals of up to $100,000; however, you still have to pay income tax. The good news: you have three years to pay them, as well as three years to pay the plan back. Also, the limit on loans from retirement accounts has been increased to $100,000, from $50,000, and payments on both new and existing loans can be deferred for a year.
Finally, the deadline to make prior-year contributions to individual retirement accounts and health savings accounts is July 15. Note that the deadline to make 2019 contributions to 401(k)s has passed; it was Dec. 31.
The best advice I can give at the moment is to stay the course with your retirement plan. If you don’t have one, get one. Set it up and forget it. That way you are buying over time whether the stock market news is good or bad. The good news is the dip in the market appears to be mostly driven by panic. The bad news is that we don’t know how long it will take for this panic to run its course.
Ryan Skinner is president of Summit Financial Partners in Woburn, Mass. He can be reached at rskinner@summitfinancialpartners.org.
