Adjusting Your Savings Goals During the Coronavirus Pandemic

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In January, the new year brought with it the exhilarating start of a new decade. A few months in, however, and things started to look much different than many of us imagined. 

As a result of the Covid-19 pandemic, businesses across the country are shuttered, and many are struggling to stay afloat. 

While the long-term fallout from the coronavirus remains to be seen, many Americans are bracing for economic uncertainty. The pandemic and ensuing lockdown have hit us all in different ways, but there are some steps we can take to help our finances handle the blow. 

In particular, you might be curious about how – and how much – you should be saving right now. While there’s no one-size-fits-all approach given everyone’s situation is different, here are some things to consider when it comes to your savings plan, based on your current circumstances. 

You feel secure in your job and have some extra cash on hand

If you already have a solid emergency fund in place (three to six months of living expenses) and feel secure in your job, then you may be in a unique position to step up your saving. For instance, you might naturally be able to save more thanks to lockdown-enforced lifestyle changes, which have required us all to stay inside, cook more, and spend less on going out.

It’s also a good time to keep up, or even consider ramping up, your contributions to your retirement accounts (e.g., your 401(k) or Traditional or Roth IRA). Here’s why: if a portion of your retirement plan is allocated towards stocks, by simply maintaining your regular 401(k) contributions, you’re in a position to take advantage of potentially lower stock prices. And it your budget allows for it, you might also consider whether you’re able to allocate more of your money toward retirement savings right now.

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If you’d rather put your extra money toward shorter-term savings goals, or simply want more in your emergency fund, consider parking that cash in a high-yield savings account.

And if you feel confident that you won’t need the extra money you’re saving for a while and want to earn a fixed rate on your savings, a Certificate of Deposit (CD) could work in your favor. 

Of course, you can also consider donating to charities, as many of them need contributions now more than ever.

You feel secure in your job, but could use a boost in emergency savings

Now’s the time to be diligent about putting money in your emergency fund. 

Following the three to six months rule, add up your monthly rent or mortgage, utility bills, insurance, transportation, debt payments, and any other regular expenses. Next, multiply that number by the amount of time you want to save (again, the minimum should be three months). 

If you need to cut back on other unnecessary expenses to bulk up your emergency fund, now may be the time. And although social distancing has its challenges, it also means many of us are saving on normal expenses like daily coffee runs, gym memberships, dining out, and other entertainment. Redistributing any funds you’d normally be spending to add to your emergency savings can be an easy way to give it a boost. 

Once you feel confident about the money that’s in your emergency fund, consider focusing your attention on your retirement accounts. If you’re nearing retirement, this should take priority.  

You’re currently employed, but aren’t sure about future job security

If you already have a solid emergency fund in place, first of all, well done. Second, take a deep breath. Your cash reserve is meant for the unexpected, and that includes job loss. You can always add even more to your emergency savings if you want, but give yourself some credit in that you have a safety net in place. 

On the other hand, if you don’t have an emergency fund and are worried about losing your job soon, start building up your cash savings as quickly as possible. Consider cutting back on your spending and try to focus on getting three to six months of expenses saved while you’re still earning a paycheck. 

If you feel like cutting back on spending alone won’t allow you to fund your emergency savings quickly enough, you could consider scaling back in other places like contributions to your retirement plans, 529 college savings or other investment accounts. By freeing up some money from those contributions, you could instead put those dollars toward your emergency fund since you might anticipate needing it soon. 

Bottom line: If you don’t have any or enough money in your emergency savings and feel a job loss coming, consider redirecting all cash flow there.

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You just lost your job

First know that you’re not alone. Losing your job in the middle of a pandemic is incredibly stressful, but there are things you can do to help ease the financial strain.

If you received a few weeks or even a few months of severance, this can provide the buffer you need to cover your essential expenses and get your finances in shape. Consider cutting back on unnecessary spending to funnel as much money as possible into your emergency fund, which you may eventually need to tap before you find another job. You’ll also want to have filed for unemployment to help cover you when your severance runs out. 

If you didn’t receive severance, the first thing you should do is file for unemployment, which you can handle through your state’s unemployment program. 

Additionally, the CARES Act, which passed in in March 2020, was designed to help Americans who are out of work as a direct result of Covid-19 and includes expanded unemployment benefits. You also don’t necessarily have to be unemployed to qualify for benefits, as the CARES Act provides assistance to furloughed workers as well.  

If you’re unable to live off unemployment benefits alone and have an emergency fund, now is the time to dip into that.

You’re about to retire

If you’ve spent years investing in a 401(k) or other retirement plan, the current climate can seem scary. 

One of the first things to consider how much you have saved and if you feel ready to retire in the current environment. If you feel like you may be behind in your savings, you might consider postponing your retirement by a few years. In addition to keeping some form of income and being able to add to your savings, you may be able to postpone collecting social security benefits depending on your age. If you delay collecting benefits past full retirement age, you may be entitled to more money down the road. 

If you still plan on retiring – whether because you need to or simply because you want to and can comfortably do so – there’s some good news for retirees in the CARES Act. For instance, as part of the provisions, retirees can now forgo Required Minimum Distributions (RMDs) for 2020 without penalty. This means you don’t have to take mandatory, taxable distributions from retirement accounts like 401(k)s, 403(b)s and 457(b)s this year. Keeping that money in your accounts now will hopefully help you recoup some of your losses if the market is able to recover. 

Additionally, under the SECURE Act put in place in December 2019, RMDs now begin at age 72 (up from 70 ½), which could help lower  your taxable income few more years.

This article is for informational purposes only and is not a substitute for individualized professional advice. This article was prepared by and approved by Marcus by Goldman Sachs, but does not reflect the institutional opinions of Goldman Sachs Bank USA, Goldman Sachs Group, Inc. or any of their affiliates, subsidiaries or division. Goldman Sachs Bank USA is not providing any financial, economic, legal, accounting, tax or other recommendation in this article. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice.  Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA or any its affiliates. Neither Goldman Sachs Bank USA nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.

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