COVID-19's impact is by no means just health-related. The pandemic has upended the U.S. economy, leaving millions of Americans out of work and forcing countless small businesses to shut their doors, potentially for good.
Retirement plan values have fallen due to COVID-19, too. The average 401(k) balance dropped $20,900 between the last quarter of 2019 and the first quarter of 2020, representing a 19% decline, according to Fidelity. The average IRA balance, meanwhile, dropped $16,500 during that time, representing a 14% decline.
But in spite of all of that downward activity, today's workers are still reasonably confident about their retirement prospects, reports the Employee Benefit Research Institute. Prior to the pandemic, 27% of workers indicated that they're very confident they'll have enough money to live comfortably during their senior years, while 69% said they're either very or somewhat confident.
That very question was posed again in March of 2020, once it became evident that COVID-19 was a major problem unlikely to quickly go away. The result? A good 24% of workers said they're very confident in their ability to retire comfortably, while 63% maintained that they're very or somewhat confident.
Granted, confidence percentages did decline slightly between January and March of this year. But for the most part, workers' attitudes toward retirement have held steady, which is encouraging at a time when IRA and 401(k) values aren't looking too great.
Of course, the above numbers also tell us that many Americans aren't confident in their retirement prospects. If that sounds like you, here are a few steps you can take to change that.
1. Stay the course
If you're already in the habit of saving for retirement, now's not the time to scale back (unless your income has taken a hit due to COVID-19, at which point you may need to pause your retirement plan contributions, and understandably so).
When the market gets volatile, some people retreat and stop funding their retirement plans for fear of seeing their balances decline further despite them making contributions. But remember, you don't lose money in a retirement plan until you cash out investments at a loss, and if you keep putting money into an IRA or 401(k) now, you may have an opportunity to load up on investments at a discount, thereby lending to more growth in your account over time.
2. Ramp up your retirement plan contributions once the COVID-19 crisis ends
If your lack of retirement confidence stems from a lack of savings, then the answer is pretty clear: Start doing better in that regard. Granted, you may need to wait until the COVID-19 crisis wraps up before upping your IRA or 401(k) contributions, but once that happens, aim to slowly but surely increase your savings rate over time.
Furthermore, if your income has held steady thus far during the crisis, but you're spending less due to being stuck at home, take advantage of those less-than-ideal circumstances by putting that unspent money into your retirement plan. A single $500 contribution today could grow into $3,800 in 30 years, provided your retirement plan generates an average annual 7% return on investment, which is a few percentage points below the stock market's average.
3. Eliminate unhealthy debt
What does debt have to do with retirement confidence? A lot, actually. The less money you throw away on things like credit card interest, the more you'll have available to put into your IRA or 401(k). And if you're a bit older and are carrying debt, getting rid of it before retirement will leave you with fewer monthly expenses during your senior years.
Eliminating debt requires you to save money, so once the crisis is over, aim to rethink your spending so you're able to do just that. Or, if you're in a position where you've saving some money now, you can use it to chip away at those nagging credit card balances.
You deserve a rewarding retirement that's free of financial stress. The fact that most Americans are confident about their senior years despite the COVID-19 pandemic is a good thing, and if you're not in that camp, a few changes on your part could change your outlook for the better.