Will Coronavirus Ruin Your Retirement?

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The unemployment rate caused by COVID-19 precautions has hit older Americans harder than any other group except the youngest workers. Older adults may not return to the workforce, or they may take a long time to do so. An April 2020 survey showed 32% of baby boomers had lost confidence in their ability to retire due to the pandemic. And while they’re waiting it out, they could be reducing funds intended for retirement or making a decision to start Social Security earlier than they’d planned.

Unemployment High
Why is it that the old are becoming unemployed at a greater rate than most? The jobs they primarily occupied were in industries that got slammed: education and health care fields unrelated to COVID-19 such as dentist offices, optometrist offices, and home health care.

These aging workers are unlikely to be hired back as readily as younger cohorts. Age discrimination could rear its ugly head as employers fear having to make special accommodations for a population most vulnerable to the coronavirus. They may worry about liability if they cannot provide a safe work environment for older adults.

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Financial experts urge those who qualify to sign up for state and federal programs aimed to help them through hard times. You may qualify for SNAP (you may remember it as food stamps) or unemployment insurance. Ask your landlord for rent reduction or call your lender and see if you can negotiate forbearance on mortgage payments that will then be tacked on to the end of your mortgage term.

If a job with a low payout would enable you to manage but you can’t find anything locally, try contacting the Retired and Senior Volunteer Programs (RSVP). These programs connect people age 55 and up with rewarding work that may pay a small hourly rate.

In the meantime, the Coronavirus Aid, Relief, and Economic Security (CARES) Act has several provisions covering retirement accounts:
• If you’re younger than 59-and-a-half, there is normally a 10% penalty on withdrawals from IRAs and defined contribution plans, such as 401(k)s and 403(b)s. The CARES Act waives the penalty if you’ve experienced hardship due to the pandemic for withdrawals up to $100,000 made from January 1, 2020 to December 31, 2020. The CARES Act also allows up to three years to pay taxes on the withdrawal, and you can repay all or part of the distribution within three years and they won’t be counted toward annual contribution limits.
• Some employers allow loans from employer-sponsored retirement plans for those impacted by the coronavirus. Contact your human resources office for details where you work.

Whether or not you should take a loan or make a withdrawal from your retirement plan is a different question. If you can avoid it and get by on other savings or assistance, you probably should. But if you’re facing an inability to pay your mortgage or buy food, it may be your only option.

Finally, the CARES Act allows people subject to required minimum distributions (RMDs) to forego them without penalty for 2020. People 72 and older with an IRA, SIMPLE IRA, SEP IRA or other retirement plan such as a 401(k) can waive payments. If you can make do without the withdrawal, it may be a good idea, but be sure to consult your tax advisor first.

Thankfully, many sectors of the economy appear to be recovering faster than was expected. But a crisis can occur at any time. The best offense is a good defense: In this case, having emergency funds so you don’t need to tap retirement accounts. But if you must, there is leeway through the CARES Act to make that a little less painful.

Source: Society for Certified Senior Advisors Blog; Thursday, July 23, 2020

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