3 mistakes that could wreck your retirement if there's a second wave of COVID-19

What you need to do to keep your retirement plans on track regardless of what the stock market does

If you're getting close to retirement age, the coronavirus pandemic could cause you to reconsider your plans. Tens of millions of Americans have lost their jobs, and your retirement investments may have taken a hit over the last few months.

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While the stock market has (at least temporarily) rebounded and many businesses are reopening, the majority of Americans are concerned that it's too soon to go back to normal. In fact, 68% of U.S. adults are worried states will lift COVID-19 restrictions too early, according to a May survey from Pew Research Center.

Re-opening the economy too soon could lead to a surge in coronavirus cases, and a second wave of COVID-19 could spell trouble for your retirement strategy. While nobody knows for sure whether there will be a second wave, there are a few mistakes you should avoid if you want to keep your retirement plans on track.

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Mistake No. 1: Pulling your money out of the stock market

Although the stock market has bounced back from its downturn earlier this year, a second wave of the coronavirus pandemic could result in another market crash. If you're nearing retirement age, it may be tempting to pull your savings out of the stock market in order to protect your money. However, withdrawing your cash can be an incredibly risky move, for a couple of reasons.

For one, there are penalties for taking your money out of your retirement fund before a certain age. By withdrawing your cash from your 401(k) or traditional IRA before age 59-1/2, you'll be subject to a 10% penalty fee and will also need to pay income taxes on the amount you withdraw. Although the CARES Act temporarily lifted some of the restrictions around retirement accounts, those new rules only apply to those who are using the money for coronavirus-related expenses -- not those who are concerned about a market crash.

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In addition, pulling your money from the stock market can be risky because you're attempting to time the market. You want to keep your money invested while the stock market is climbing, then withdraw your cash at the last possible moment before a crash. That kind of timing is nearly impossible to achieve, even for professional investors, and pulling out of the market at the wrong time could cost you a lot of money.

Mistake No. 2: Retiring now if you're not financially prepared

If you've lost your job and can't find another one, you may have no choice but to retire now, whether you're ready or not. But if you are fortunate enough to still be employed and you're considering retiring now, triple-check that you're financially prepared.

One of the pitfalls of retiring when the stock market is volatile is that you risk withdrawing money from your retirement account during a market downturn. If you choose to retire now and the market crashes again, you'll probably end up withdrawing your savings when stock prices are at rock bottom -- potentially losing money on your investments.

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Before you retire, consider all your sources of retirement income. If you're going to be relying primarily on your personal savings and you have just enough saved to get by, retiring now could be risky because a crash could wreck your plans. Instead, it might be wise to hold off on retiring for a couple of years until the stock market is a little less volatile, or find other sources of retirement income so you won't be so dependent on your savings.

Mistake No. 3: Pressing pause on saving for retirement

It can be daunting to continue investing when a second wave of COVID-19 is looming, but not saving for retirement right now could be even more dangerous.

Saving for retirement takes decades of consistent work, and pressing pause right now will cause you to miss out on your most valuable resource: time. Nobody knows how long it could be before the stock market stabilizes, and if you stop saving for a year or two (or more), that can throw off your retirement plans.

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Of course, it may seem counterintuitive to invest even when a market crash could be imminent, but market downturns are prime opportunities to invest. Because stock prices are at their lowest, you can get a lot more for your money by investing when the market is down. If you were to wait until the market stabilizes to invest, you'd miss out on the chance to load up on stocks at a deep discount.

It can be tough to prepare for retirement when the future is uncertain, and nobody has all the right answers. But by avoiding these mistakes, you can ensure you're doing everything possible to keep your retirement plans on track regardless of what the stock market does.

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