While saving for retirement is typically a top money priority, don’t beat yourself up if you don’t do it now during a pandemic, according to one financial expert.
“The biggest point I can drive home here...mit is OK if you had to pause retirement savings given the amount of uncertainty that’s out there,” Douglas Boneparth, president of Bone Fide Wealth, told Yahoo Finance (video above). “I didn’t want anyone feeling like they were doing something really wrong if they really needed a little bit more of a cushion.”
The latest data from Fidelity showed that the average 401(k) contribution rate held steady at 8.9% in the first quarter, while the employer contribution remained at 4.7%.
Fidelity also found that 165,000 people took hardship withdrawals in April alone, compared with 220,000 in the first three months of the year. The coronavirus relief legislation, dubbed the CARES Act, relaxed penalties for taking funds out of 401(k)s early.
You can withdraw up to $100,000 from your 401(k) or IRA early without being charged the 10% additional penalty as long as it’s a coronavirus-related hardship. Typically, you would pay this penalty if you were younger than 59 ½ years.
You also can avoid taxes on the withdrawal if you return the amount you took out within three years. If not, the taxes can be spread over three years, under the act.
While Boneparth views retirement funds “as pools of last resort to grab money,” he said it’s understandable given the gravity of many Americans’ lives now. In April, U.S. employers shed a record 20.5 million payrolls and the unemployment rate jumped to 14.7%.
“In dire circumstances, when you’re looking at what you have available, and if the only thing is your retirement money, I get it,” he said. “You have to put food on the table. You have to eat.”
If possible, Boneparth recommended that Americans first consider taking a loan first against your 401(k) rather than withdrawing funds.
The CARES Act allows you to borrow up to $100,000 or 100% of your retirement funds — whichever is smaller — as a loan if you’ve been economically hurt by the pandemic. You can also delay any repayment obligations for 401(k) loans this year under the act.
The loan option, though, is typically only available to those who are still have jobs, so others may need to withdraw funds instead if they’re unemployed.
“But look, [in] uncertain times, it gets very scary. People lose jobs,” Boneparth said. “Let’s not pretend like: ‘Oh this is horrible’...what’s the alternative? You have to think about that.”
Janna is an editor at Yahoo Money and Cashay. Follow her on Twitter @JannaHerron.