The effects of COVID-19 on the workforce have been widespread. The financial implications of wage reductions and layoffs have forced many Americans to dip into their retirement accounts. While the Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted to allow people to withdraw or borrow money from these plans without penalty, the long-term consequences can be severe.
Retirement planning may feel like an oxymoron in the face of the ongoing volatility resulting from COVID-19, but it’s crucial employees remain invested in their retirement funds despite the rollercoaster ride the financial markets have taken us on this year.
Even under normal circumstances, retirement planning can intimidate. It’s easy to put it off when there are more pressing concerns, especially when tackling it can feel overwhelming. Retirement planning experts say the following strategies can help employers and employees focus together on their retirement years.
- Help employees save for emergencies and retirement. Even high wage earners aren’t immune from tapping into retirement funds if they don’t have adequate savings built up. Those early withdrawals take an average of six years to replace, creating a serious setback. Borrowing money from 401(k) plans is a sign that an individual needs help planning for financial emergencies; by establishing an emergency fund with assets they can use in the short term will make it less likely they’ll raid their retirement accounts. Consider funding emergency savings accounts through payroll deductions and offering incentives, such as employer matches, to encourage participation.
- Take advantage of all available tools and resources. Employees with access to a wide variety of financial planning tools are better equipped to deal with short-term emergencies. Online financial platforms, education, budgeting assistance, emergency savings accounts and financial wellness resources are all excellent resources for your staff to utilize. The fewer seemingly overwhelming decisions they have to contend with, the more receptive they’ll be to planning for their golden years.
- Focus on health care costs. As employees approach retirement age, the need for detailed information on the health care costs they’ll incur when they are retired increases. Employers can help by communicating with these individuals on topics such as planning for health care costs, securing health insurance until they become eligible for Medicare and using the funds they’ve accumulated in their health savings accounts (HSAs). Don’t overlook younger employees; making them aware of the benefits of HSAs now can make a big difference when it’s their turn to retire.
Make the shift from retirement savings to retirement income. Issues such as Social Security benefits, inflation, job longevity and post-retirement part-time work all factor into retirement planning. In order to ensure financial security for the next 20+ years, employees must know when they can comfortably retire; for those contemplating early retirement, they should understand the consequences. Drawing Social Security at age 62, for instance, as opposed to waiting until age 70 will make a big difference in monthly pay. Discuss with them the advantages and disadvantages of using 401(k) funds to purchase an annuity for retirement income to supplement Social Security benefits.