By: BILL STORDAHL, CFP®

From job losses to portfolio declines to health care costs, COVID-19 has affected many Americans’ retirement plans. The health and social impacts of the pandemic can be difficult enough to deal with on their own, and you do not want the financial aspects to add to the burden.

Fortunately, even if you face financial challenges that imperil your retirement plans, you can take steps. We call these steps retirement plan triage. They involve assessing the issues affecting your retirement security and determining how to remedy them. This blog will give pointers and insights to help.

We will walk you through the following areas:

Why you may need retirement plan triage
What can happen to your retirement plan during a time of pandemics
What to do if you need to shore up your plans for retirement

By following these steps, you can help get your retirement plan back on track or perhaps prevent it from falling off in the first place.

Why You May Need Retirement Plan Triage

Has the COVID-19 pandemic affected your ability to retire? Your answer is going to depend on your specific situation. But as a rule, the closer you are to retirement, the more economic or market downturns will affect you. Add in any number of other challenges, and your retirement plan may need triage.

Here are some of the reasons why your retirement plan may need help:

The Value of Your Retirement Portfolio Dropped

In the early stages of the pandemic, the stock market tumbled dramatically. Within the span of roughly a month, the S&P 500 went from its all-time high to a more than 30% drop.

Since then, the market has climbed, but your portfolio value may still be less than when you started 2020. Another downturn could set you back further.

A comprehensive look at your finances can help you determine whether you can retire as planned regardless of the stock market’s variability.

You Panicked and Sold Equities When the Market Plummeted

It is easy to panic when markets drop into recession territory. Like many others, you might have sold your losing equities to try to stop the losses. But that is a move we generally caution against because it leaves investors missing out on the market recovery. You may now be looking at a portfolio value that is less capable of sustaining you in retirement.

You Got Laid Off or Took an Early Retirement

If you were laid off, you have joined a very large group of job seekers. Or you may have decided to retire earlier than you accounted for. Either way, you need to adjust your retirement plan for the loss of income.

Your Business Closed—Temporarily or Permanently

If COVID-19 forced the closure of your business, then you are grappling with issues of lost income. And if you were planning to use the sale of your business to fund your retirement, you face more complications. You need to assess how the value of your company has been affected and whether you need to rely on other sources to fund retirement.

You Got Sick and Have Medical Bills

Medical bills can quickly pile up. You may find yourself dipping into your retirement or emergency funds to pay your bills, reducing the money you have available for retirement. If your health leaves you uncertain about when you will work again, your retirement plan could look even more questionable.

You Took Time off Work to Take Care of a Loved One Who Got Sick

Taking time off may have been necessary to care for a loved one, but it is important to know how your leave, especially unpaid leave, affects your retirement. Once you return to work, for example, you may need to make up for the lost income by increasing your retirement account contributions. (We will cover action steps like this ahead.)

Take Action: Your Peace of Mind Is Worth It

You may have suffered one, two, or many of these challenges—or something else altogether. Everyone’s situation is unique. But if the effects of COVID-19 have you worried about your ability to retire, then take the time to shore up your plan. The peace of mind alone can make the effort worth your while.

How COVID-19 Can Affect Your Retirement Plan

If the COVID-19 pandemic has affected you, what does it mean for your retirement plan? The specifics depend on the extent your plan has veered off course, but in general, you may need to adjust levers such as retirement age, income, savings, investments, and goals. Specifically, you may need to:

Postpone Your Retirement

If your retirement portfolio has dropped in value or you are unable to save as much as you planned, you may need to delay your retirement. In working a few more years, you can focus on putting enough income aside to replenish your savings.

Work Part-Time in Retirement

If postponing your retirement does not appeal to you, you can consider working part-time in retirement. This option allows you to wind down your career while making up for income lost during the pandemic. You will be in good company: 57% of workers plan to work at least part-time in retirement, according to a Transamerica survey.[1]

Work Overtime or Find Side Work Before You Retire

You might decide to put in the extra work hours before you retire. If overtime is an option at your job, adding hours may help you earn enough to overcome issues like the drop in your retirement portfolio or an employer ending their matching contributions to your 401(k).

Similarly, you might be able to find side work to earn extra income you can put toward your retirement funds. Since this extra work brings in income you normally would not have, you should earmark as much of this income as you can for retirement.

Overhaul Your Retirement Plan

If you’ve lost significant retirement income or your life has changed due to health or other concerns, your retirement plan may no longer be sustainable. You may need to make changes in multiple areas. Instead of, say, retiring at age 65 with a plan to draw down $100,000 per year in retirement income, you now may plan to retire at 68 and live off $80,000 per year.

The goal is to have a detailed plan that helps you live without the anxiety that you will run out of money in retirement. You want to enjoy your life in retirement without worrying that you are drawing down your savings too quickly. Taking the following steps may help.

What to Do If You Need Triage for Your Retirement Plan

So you have evaluated your finances and determined that you need to shore up your retirement plan. What can you do? In the sections that follow, we describe a series of steps you can take. Apply the ones that fit your situation, and evaluate periodically to help ensure you are making progress.

Assess Your Investment Portfolio

A drop in your portfolio value is not necessarily something to stress over. Your long-term investment strategy should help account for the market’s ups and downs.

Depending on the amount you are down and factors such as your age, you might be able to sit tight through a market recovery. In other cases, you may need to adjust your asset allocation to better align with your risk tolerance and goals.

For example, you may have sold stocks at the beginning of the pandemic and bought bonds or held on to cash. You may need to adjust your asset allocation back toward holding a larger share of equities. Doing so increases your investment risk, but it can provide more opportunities to recover.

Similarly, rebalancing your portfolio can help realign your asset allocation with your stated risk tolerance and help you meet your investment goals. By rebalancing, you effectively buy low and sell high (a great rule of thumb in investing), while resetting your asset allocation to its intended balance.

If you can afford it, you may want to increase your investment holdings. That is not to say you should throw good money after bad, but by having more money invested in the market, you can increase your potential to earn a positive return on that money in the long run. That additional return can provide you with more retirement income.

Replenish Savings and Emergency Funds

Has COVID-19 caused you to dip into your emergency fund? Have you stopped earmarking money for your savings account during this time? If so, it is essential to take a hard look at where you stand with these accounts and determine how (and by how much) you can replenish them.

Say you lost your job and drew on your emergency fund to cover expenses. First, don’t feel bad. That is what the emergency fund is for. Second, once you are working again (or before, if possible), revisit your budget. Can you put in some overtime or do side work to replenish your emergency fund? Do you need to cut expenses so you can start saving money again?

Making sure you have an adequate cash cushion is vital—COVID-19 has proven that. And you want to do what you can now to remove the fear of unexpected expenses in retirement, when your income will be more fixed.

Examine Debt

For some, the pandemic has increased their debt. Maybe you took out an emergency personal loan or a loan from your 401(k) plan. This debt helped get you through a rough patch, but you need a plan to pay it back while still saving for retirement. That might mean cutting down on your spending until your debt becomes more manageable.

In other cases, the pandemic has helped those with debt. With mortgage rates so low[2], now could be a great time to refinance your home to save money on interest payments.

Similarly, you could consolidate multiple loans into one with a more favorable rate. From there, you can put the additional savings toward your retirement or sources that need replenishment, like an emergency fund.

Cut Back on Expenses

We have touched on this in previous steps, but carefully assessing your spending can turn up ways to save and thus get your retirement plan back on track. Some cuts may be significant, like forgoing the new car you had planned on. If your current vehicle is still serviceable, then you could apply the money that would have otherwise gone toward those (expensive) car payments toward your retirement.

You can cut back on other areas—or perhaps COVID-19 has done it for you. You are probably not eating out as much or driving as often. Such savings may seem small individually, but together they can add up to a sizable amount that you could contribute to, say, an IRA.

Especially in investing, the more you save earlier in life, the less you have to save later to get to the same place. So, if you’re still several years away from your planned retirement, saving money now and letting the returns compound over time is often one of the best financial decisions you can make.

Evaluate Social Security Benefits

If you have yet to claim Social Security benefits, you may want to re-evaluate the optimal age to begin taking them. Use a benefits calculator at the Social Security Administration website to determine your potential benefits at the age you plan to retire versus other ages. Is the date you want still feasible? Will your financial situation in retirement be improved if you wait?

You can start taking Social Security as early as age 62 and receive a reduced benefit, wait until your “full retirement age” (generally 66-67 depending on the year you were born) for your full benefit, or postpone until 70 for the maximum benefit.

If you are contemplating early retirement because of job loss, but you just need a bit more monthly income, then claiming Social Security before age 70 might work for you. In other cases, waiting until age 70 will make more sense. For example, if your retirement portfolio has declined significantly and you plan to work until age 70 to make up the losses, you might decide to live on your existing income and postpone Social Security.

Review Coverage for Health Care and Long-Term Care

As the pandemic has shown, our health can take a turn without warning. Make sure you are comfortable with your level of health coverage. If you get sick or injured, inadequate (or no) coverage can push back your retirement plans as you scramble to pay the doctor’s bills.

You can start claiming Medicare at age 65. Make sure to assess your current health and potential conditions to determine whether Medicare Parts A and B are sufficient. You may want to add supplementary insurance or prescription drug coverage to reduce the risk of large bills cutting into your retirement funds.

And what do you do if you lose your job or take an early retirement and you are not yet 65? We do not generally recommend dropping health insurance altogether. You may be able to use COBRA—although that can be expensive, especially if your former employer does not subsidize it.

If you are married, see if your spouse can add you to their health care coverage. Otherwise, shop around for coverage through a private insurer or the public exchange.

You should also look at how you will pay for long-term care if it becomes necessary. Long-term care can be expensive. A home health aide, for example, costs over $4,000 per month on average, according to Genworth.[3]

If you do not have enough money to cover extended care, you may want to consider purchasing long-term care insurance. Although premiums can be expensive and another expense to your budget, there are hybrid options available. Do your research carefully, or talk to a fiduciary financial advisor about your concerns.

See Where You Can Cut Taxes

The pandemic can offer opportunities for your retirement plan, especially in the form of tax savings.

For investment losses, for example, you can leverage tax-loss harvesting. This strategy allows you to sell assets that have declined in value to offset the capital gains taxes you will pay on assets that you sell for a gain.

What is more, after you use your losses against your gains, you can use $3,000 of remaining losses to offset ordinary income. You can “carry over” the remaining losses to future years as well.

Tax-loss harvesting allows you to pay less in taxes, and you can use these tax savings toward investing or saving.

Meanwhile, you can complete a Roth conversion to help increase your tax flexibility in retirement. With a Roth IRA, you do not have to pay taxes when you make withdrawals in retirement. Since many believe that taxes are going to increase, a Roth can prove a valuable income source after you retire.

However, you have to pay taxes when you convert your traditional IRA into a Roth IRA, so make sure you have the money available to pay those taxes. Converting in a time like this pandemic can especially make sense if your income has dropped and you fall into a lower tax bracket.

Business Owners: Determine If Your Exit Plan Has Been Affected

If you were planning to sell your business to fund your retirement, those plans might need to change due to COVID-19. Assess whether the value of your business has decreased, and determine how that drop might affect your retirement plans.

Know that if you are struggling to save for retirement, you are not alone. A 2019 survey by small business mentor SCORE found that one-third of small business owners lack retirement savings plans, and 40% don’t think they’ll be able to retire by age 65.[4] And this survey was before COVID-19!

The pandemic makes this situation even more challenging for many business owners who have seen revenue tumble and companies close at least temporarily.

If you think that the loss of income is not permanent and that you can fully bounce back soon, you may not have to make significant changes. (However, this depends on other factors, such as your financial situation, your planned retirement age, and the future course of this pandemic.)

If you think your business has taken a hit that hurts your retirement, then consider how you can protect your personal wealth. This may mean taking other steps, such as increasing your retirement plan contributions and getting a professional business valuation. As tough as the knowledge can be, it is better to have a realistic exit plan than fail to take proactive steps and end up with less money to enjoy retirement.

Talk to a Financial Advisor

Let’s face it. Retirement planning is complicated even without a pandemic to account for. It is like a puzzle whose pieces include taxes, investments, cash flow, Medicare, Social Security, and so on. Putting those pieces together so you can see the whole picture may require more time and expertise than you have.

If you have been working with a broker, that probably is not going to be enough. Transaction-based professionals like brokers are not usually employed to give you advice on your entire financial picture. And their help may come with commissions attached, which means they may not be putting your interests first.

A fiduciary, fee-only financial advisor with a focus in retirement planning can help you see the big picture of your retirement. They can carefully assess all areas of your finances to help you determine what is still OK in this pandemic and what needs to change, and how.

As a fee-only advisor, they do not receive commissions; and as a fiduciary, they must put your best interests first. Taken together, fee-only and fiduciary mean that the advice you receive is intended to put you in a better place.

At Stordahl Capital Management, our expertise is retirement. We work with people who are wondering whether they will be all right in retirement, and we develop comprehensive financial plans to help keep them on track. Our advisory firm is both fee-only and fiduciary, and our team includes CERTIFIED FINANCIAL PLANNER™ (CFP®) professionals to help ensure an all-encompassing approach to retirement planning.

Whether you work with another financial advisor or us, we suggest that you thoroughly review your options. Do not be afraid to ask questions of a potential advisor, and make sure their answers are transparent. If you are unsure that they would be working in your best interest or can meet your needs, then seek someone else. Your financial well-being is that important.

Now’s the Time to Build Confidence in Your Retirement Plan

COVID-19 has been difficult for so many of us, and we hope this article has helped reduce at least one of your concerns: retirement. By taking action, you can help triage your retirement plan and get to a place where you can stress less about your finances and focus on your family.

Our Greenwood Village, CO financial advisory firm offers a complimentary 15-minute call. We can briefly discuss your financial situation and retirement concerns, and share how we may be able to help.

This commentary reflects the personal opinions, viewpoints and analyses of the Stordahl Capital Management, Inc. employees providing such comments, and should not be regarded as a description of advisory services provided by Stordahl Capital Management, Inc. or performance returns of any Stordahl Capital Management, Inc. Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this piece constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Accessing websites through links directs you away from our website. Stordahl Capital Management is not responsible for errors or omissions in the material on third party websites and does not necessarily approve of or endorse the information provided. Users who gain access to third party websites may be subject to the copyright and other restrictions on use imposed by those providers and assume responsibility and risk from the use of those websites. Please note that trading instructions through email, fax or voicemail will not be taken. Your identity and timely retrieval of instructions cannot be guaranteed. Stordahl Capital Management, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

1. Transamerica Center for Retirement Studies. “Retirement Security Amid COVID-19: The Outlook of Three Generations—20th Annual Transamerica Retirement Survey of Workers.” May 2020. https://transamericacenter.org/docs/default-source/retirementsurvey-of-workers/tcrs2020_sr_retirement_security_amid_covid-19.pdf
2. Freddie Mac. http://www.freddiemac.com/pmms
3. Genworth. “Cost of Long Term Care by State.” 2019. https://www.genworth.com/aging-and-you/finances/cost-of-care.html
4. PR Newswire. “One-Third of Small Business Owners Lack a Retirement Savings Plan.” SCORE. Apr. 17, 2019. https://www.prnewswire.com/news-releases/one-third-of-small-business-owners-lack-a-retirement-savings-plan-300833644.html

Retirement Plan Triage: 9 Steps to Protect Your Retirement in a COVID-19 World