The coronavirus pandemic has affected the finances of many households — millions of Americans have lost their jobs and the market volatility the pandemic has caused has shaken up people’s retirement savings. With the economy in a state of upheaval, you might be wondering what the best move to make is regarding your retirement savings — stay the course or change things up?
MassMutual conducted a survey of 1,000 Americans in April and asked what they planned to do with their retirement savings in the current climate. Here’s what the survey found — plus, what experts say you should do.
55% of Americans Have Changed or Will Change Their Retirement Contributions
Over half of those surveyed by MassMutual — 55% — said that they have changed or plan to change their retirement contributions, with 23% already contributing less or planning to contribute less.
54% of Americans Who Are Changing Their Contributions Want To Have More Cash on Hand
According to the survey, among those who are making a change to their retirement contributions or plan to make a change to retirement contributions, 54% said they are contributing less to have more cash on hand.
Contributing Less Makes Sense for People Who Need Access to Cash
“Anyone who has lived through a financial downturn knows the value of having access to cash,” said Teresa Hassara, head of MassMutual’s workplace solutions business. “This is an old, tried and true strategy that helps keep plans in place and options open.”
However, this change should only be temporary, she said.
“For those who need to make changes to support their daily needs, reducing contributions to retirement savings is one short-term option to help build an emergency savings fund for access to immediate cash,” Hassara said.
Reducing Retirement Contributions Is a Better Option Than Using Credit Cards
If reducing your retirement contributions would enable you to cover your living expenses, this is a better option than relying on credit cards.
“I would caution against building up credit card debt if at all possible,” Hassara said.
Millennials Are More Likely To Cut Back on Retirement Contributions Than Other Age Groups
Twenty-nine percent of millennials said they are saving less for retirement or plan to save less for retirement as a result of the current economic situation. For Gen Z that percentage is 23%, for Gen X, 28% said they are saving less or plan to save less, and for baby boomers, 19% said they are saving less or plan to save less.
Cutting Back on Retirement Contributions To Save More Could Be a Wise Move for Millennials
The survey found that 36% of boomers were not prepared for the pandemic with a healthy emergency fund.
“Seeing that over one-third of boomers were not prepared for this economic downturn provides a ‘pay it forward’ lesson for future boomers and younger generations,” Hassara said.
One-third of millennials also said they were not prepared, so focusing on an emergency fund now could be a smart money move.
63% of Boomers Will Not Change Their Retirement Contributions
Even though many boomers are close to retirement age — if they are not already retired — the majority said they would not be making changes to their retirement contributions.
“Those who are able to stay the course likely planned ahead for market volatility and unplanned twists and turns in life,” Hassara said. “Planning oftentimes provides options that may otherwise not be available.”
Over One-Fifth of Americans Who Are Making Changes Are Increasing Their Retirement Contributions
Among Americans who plan to make changes to their retirement contributions, 22% said they plan to contribute more to retirement savings to take advantage of market fluctuation.
Contributing More To Your Retirement Savings Could Be Beneficial With Current Market Conditions
Hassara recommends maintaining your retirement contribution or increasing it if possible.
“For those who can, they should continue to contribute to their retirement savings plan — at least to get the full value of their employer’s match if there is one — and contribute even more if they are able to reap the benefits of a down market,” she said.
21% Plan To Keep Contributing, but Change Risk Exposure
Among Americans who plan to make changes to their retirement contributions, 21% said they plan to make adjustments to their portfolio’s risk.
Gen Z Is Most Likely To Change Their Risk Exposure
Perhaps because they have the most time for the market to bounce back, Gen Z is the most likely to change their risk exposure during this time, with 41% saying they will be keeping their contributions the same but adjusting their risk.
Your Ideal Risk Level Will Depend on Your Circumstances
“If you have a longer savings horizon, you may consider a higher risk scenario to take advantage of market downturns, upswings and corrections,” Hassara said. “Everyone has a risk profile when it comes to how much they can stomach with market swings, and those nearing retirement with less of a savings horizon should think about minimizing risk if market exposure keeps them from sleeping at night. We’re seeing a good number of our own retirement plan participants over age 55 recognizing this and moving towards a more conservative approach.”
If You’re Tight on Cash, Retirement Contributions Should Not Be Your Priority
The MassMutual survey found that 49% of Americans believe they will be saving more money than usual due to the coronavirus pandemic. If you are able to put these extra funds toward savings, paying down debt or retirement contributions, retirement contributions should be your last priority, Hassara said.
“If you do not have an emergency fund that can cover your bills for six to eight months, that should be your first priority,” she said. “Another is simply paying bills and loans on time. MassMutual ran research with young adults age 25-40 recently and more than half didn’t realize that one of the biggest drivers of a credit score is paying your loans on time. If you’re at risk of running late, contact your lender before the due date to discuss options.”
What Other Experts Are Saying
Still unsure what you should do about your own retirement contributions? GOBankingRates asked a number of financial experts and business pros to get their insights. Here’s what they had to say.
Keep Contributing If You Can
“When it comes to retirement preparedness, the most important action you can take is to save as much as possible — which is why it is so important to keep contributing if you can afford to,” said Melissa Ridolfi, vice president of retirement and college leadership at Fidelity Investments. “Keep in mind, saving for retirement is something that takes place over the course of decades. Because of this, what may seem like relatively small amounts now can have a far bigger impact by the time you reach your retirement years.”
For example, a contribution of $6,000 could grow to $64,059 in 35 years, assuming a 7% rate of return.
Prioritize Your Rainy Day Fund
“It makes sense for people to be a little wary right now,” said Mark McKee, president and COO of OnPay. “National trends show a lot of employees are losing their jobs, and among our clients, we’re definitely seeing some layoffs and furloughs. Because retirement plans are illiquid, it may be prudent for some families to make sure they have rainy-day funds in their bank account before putting money away for the future.”
Have 3 to 6 Months of Income Saved in an Emergency Fund
“While you don’t want to stop contributing to your retirement account during COVID-19, your emergency fund plays a vital role during this pandemic, especially if you experience a drop in your income or job loss,” said entrepreneur, author and keynote speaker John Hall. “If you don’t have three to six months of income set aside in an emergency fund, then reduce your retirement contribution and put the money in that fund.”
Adjust Your Portfolio To Invest In Innovation
“With U.S. Treasury yields likely to move into negative territory this year, there will be price appreciation in these asset classes,” said Steven McClurg, chief investment officer at Exponential Group. “Equities will continue to be out of vogue as unemployment rates rise above 20%, and with equity P/E ratios above 18, despite 2020 earnings moving lower. But more importantly, investors are barbelling their portfolios with investment in innovation, such as fintech, future of work and digital ‘life hack’ themes, areas that make people’s lives better and more efficient in a changing environment. We are more interested in the latter — and there are great opportunities in the market.”
Adjust Your Portfolio, but Keep Retirement Goals and Plans Consistent
“When it comes to planning for retirement, major market swings can and should have a significant impact on the relative weight of various holdings in a retirement portfolio,” said Nate Nead, managing director at ROI.me. “Black Swan events like COVID-19 tend to force needed changes in individual retirement portfolios. While such unlikely events may alter portfolio weights, they should not change overall retirement planning goals and objectives. The strategies and tactics used to achieve a desired outcome will, of necessity, require adjustment. Because individual circumstances differ, how one approaches such portfolio alterations should be performed with the help of a qualified advisor.”
Your Job Security Should Determine Whether or Not You Make Changes to Your Contributions
“Assess your job security before making any changes to your retirement contributions,” said Tiffany Delmore, founder of SchoolsSafe. “Although the near future continues to remain uncertain, there are likely some signals that point toward your industry’s economic health going forward. If you need to shore up accounts to cover living costs, then do that before retirement contributions. Otherwise, if your income still remains on track, continue contributing to your retirement.”
Consider Putting Your Stimulus Check Toward Retirement Savings
“If you are doing well with income during COVID-19 and received any stimulus check, then don’t spend it,” said Chalmers Brown, CTO at Flint. “Make that your retirement contribution or add it to what you already put away each year. For some fortunate enough to continue making a living, the stimulus money should be viewed as money you never would have otherwise had.”
Put Money You Are Saving Due To the Pandemic Into Retirement Accounts
“Even if you are making less this year due to the COVID-19 situation, take a deep dive into your budget and current spending,” said Jon Bradshaw, president at Appointment. “There may be places where you are not spending as much, like gas, entertainment and restaurants, where that money could be used to make the same or larger retirement contribution.”
Reassess Your Investments If You Are Risk-Averse
“With the stock market upheaval and the corresponding volatility to many Americans’ retirement accounts, now’s a good time to reassess your retirement plan,” said Jayson DeMers, CEO at EmailAnalytics. “If you’re risk-averse, it might be a good idea to stay out of the markets and divert your retirement contributions to safer havens until the economy stabilizes.”
Don’t Make Any Rash Decisions
“There’s no question that unprecedented levels of market volatility and financial uncertainty, like those we’re experiencing today, can cause people to consider making changes to their retirement contributions. However, it’s important to not do anything rash,” said Dan Keady, chief financial planning strategist at TIAA. “It’s completely understandable that people feel anxious. Despite the increased volatility, people should revisit their financial plans and should try their best to stay focused on their long-term investment goals. Remember, the best investment strategy is a long-term one.”
Supplement Your Retirement Savings by Investing In Annuities
“To safeguard against future volatility as you approach retirement, start building an income through annuities,” Keady said. “An annuity is a financial product that can generate regular income payments in retirement for your entire life, no matter how long you live. You can begin to invest in an annuity through your employer, if available, or you can purchase one on your own. The more you build up in the annuity over the course of your life, the less you will have to worry about volatility or a downturn close to your retirement date.”
More From GOBankingRates
Jaime Catmull contributed to the reporting for this article.