5 Retirement Planning Steps To Heal The Pandemic's Damage - Investor's Business Daily

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Did the coronavirus pandemic dent your retirement planning? Can you undo the damage now? Here are five steps you can take to heal the harm, according to a top Fidelity retirement planning expert.

And if your savings and planning got knocked off track, don't beat yourself up. Of course, you're not alone. A shocking 82% of Americans say the coronavirus pandemic impacted their retirement planning.

That's according to a new study by Fidelity Investments. Fidelity maintains retirement savings accounts for tens of millions of Americans.

Lost jobs, lost income and lost account balances due to early withdrawals from retirement savings are the main culprits.

Retirement Planning Impact From The Pandemic

As a result of the pandemic damage, fully 33% of Americans fear it will take them two to three years to get back to where they were in their retirement planning. That includes restoring lost savings.

The second biggest group of people, 24%, says their retirement planning has been set back about one year.

Reflecting the uncertainty sown by the pandemic, the third largest group of people, 18%, says they are not sure how far their retirement planning has been set back.

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5 Steps To Heal The Harm: First Plan Ahead

Still, there are five basic steps that you can take to undo the harm that's been done to your retirement planning.

Start with the basics. You need a plan. "Having a plan is critical," said John Boroff, Fidelity's director of retirement and income solutions.

Much of the anxiety that people feel now, a year after the start of the pandemic, is due to a sense of having lost control. "Many people do not know where to begin," Boroff said. "Having a plan will help you think more clearly about retirement expenses. It will help you identify where you are in terms of retirement planning. It will help you understand where you have fallen behind. And it will help you figure out what you need to do moving forward to reach your retirement planning goals."

Your plan should spell out key points such as your retirement age and how large your nest egg must be by the time you retire. It should also specify how much:

Risk you're willing to stomach in your investments.
Income you'll need every year in retirement.
Monthly benefits you expect from Social Security.

A simple-to-use table in this other IBD report spells out how much you need to save by any age, no matter how big or small your annual income is.

Sock Away Enough Money

Saving enough means aiming to save 15% of your pay each year. That takes discipline. But it can be easier than it might seem. Remember, it can include any company match you receive through your 401(k) account or similar workplace savings plan. Always save enough to earn your employer's maximum match. Otherwise, you are turning down free money.

And don't worry if you can't start with a savings rate of 15%. You can always make small incremental increases in your savings rate. Even increases of one percentage point a year add up over time.

Save Inside Tax-Sheltered Accounts

Use the right tools. Savings vehicles like IRAs and 401(k) accounts give you tax breaks. Your savings grow without being taxed as income each year. Contributions to traditional IRAs and 401(k) accounts are tax deductible. Withdrawals from Roth-style retirement accounts are tax-free.

In contrast, you get none of those tax breaks from savings inside taxable brokerage accounts and bank accounts.

Know Stocks And Stock Funds Are The Backbone Of Your Retirement Plan

Invest wisely. That means investing in age-appropriate securities. When you're young, invest in stocks, stock mutual funds and stock ETFs.

One way to do that is by investing through target date funds. That helps many savers — especially young workers — avoid a common error: parking retirement savings in cash and bond funds for decades. Your money will grow much faster in stocks and stock funds than in cash.

How much should you invest in bonds and cash as you get older and closer to retirement? That depends on your risk tolerance and goals. But check out what professionals do.

The $28.5 billion Fidelity Freedom Fund 2040 (FFFFX), which caters to investors who plan to retire in 19 years, has 90% of its shareholders' money in stock funds and just 10% in bond funds.

The $31.5 billion Freedom Fund 2025 (FFTWX), which suits much older investors close to retirement, has just 60% of its assets in stock funds.

Time Social Security: Vital To Retirement Planning

Maximize your Social Security benefits. If you can afford to, delay the start of Social Security until you hit age 70. Then start to collect, because there you can't gain anything from further postponement alone.

Here's how the numbers work: You can start collecting at age 62. But if you start at 62 rather than what the Social Security Administration calls your full retirement age (FRA), your monthly benefits are reduced by as much as 30%.

If you were born in 1960 or later, your (FRA) is age 67. For every year after FRA that you delay retirement, your benefits rise by 8%. That can translate into at least a 24% higher monthly benefit if you delay benefits until age 70.

The bottom line for all of that retirement planning? "Some planning steps can be painful," Boroff said. "But if you look at all of the steps, taken together they can reduce the pain and stress you might feel now if your retirement planning has been thrown off track by the coronavirus pandemic."

Learn how to generate $100,000 of retirement income without eating into your savings principal.

Follow Paul Katzeff on Twitter at @IBD_PKatzeff for tips about retirement planning and active mutual fund managers who consistently outperform the market.

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