When President Donald Trump signed the CARES Act into law near the end of March, it permitted Americans to withdraw up to $100,000 from their 401(k) retirement accounts to make ends meet during these times minus the 10 percent penalty that would normally be associated with doing so. So long as the money was used for financial needs related to struggles caused by the COVID-19 pandemic, Americans will have up to three years to pay back their coronavirus withdrawal or else be subject to the tax.
This stipulation has good intentions, but three years is a relatively short time to repay an amount of this significance. And while there’s always the chance that another bill is passed that loosens the restrictions on this, it’s probably a good bet that many Americans will withdraw money to help them get by during these times and not be able to pay it back. It could spell doom for the long-term health of retirement savings and throw a wrench in retirement plans.
Noting this, it might be time to start exploring other avenues of income for your retirement years. Here’s a closer look at some of them:
Health Savings Account
There are a few nice things about your Health Savings Account, or HSA. One, the money rolls over year-to-year – so you won’t lose it if you don’t use it like a Flexible Savings Account (FSA). Two, it works similar to an IRA once you turn 65 years old if you’re using it for medical expenses. It’s estimated that a 65-year-old can spend nearly $300,000 on health care expenses in their retirement years, so continuing to build an HSA can go a long way toward covering some – or all – of these costs. You can also withdraw money from your HSA for non-medical purposes once you hit retirement age, though you’ll pay income tax on it.
Yes, social security is already reportedly underfunded. But if you’re planning to retire in the near-term, there’s still a good chance that you’ll be able to rely on this for part of your retirement income. In fact, in more optimistic news about social security, a recent Social Security Trustees Report has stated that the program will still likely pay out at least 75 percent of benefits for about another 70 years. Simply put, the health of this program will keep it around for years to come and changes could also be made to ensure it continues for even longer.
While working during retirement somewhat defeats the purpose of retirement, the reality is that many Americans might still yearn for some sort of greater purpose after hanging it up from a career. A part-time job, even if it’s just seasonal, can help fund retirement and help you stay busy. But you don’t just have to see what businesses are hiring and fill out an application, you can get creative with your skills too. Maybe you’re into painting, photography or some other specialty? Maybe you have a second property that you choose to rent out when you’re not using it. Or maybe you worked another gig during your career that you can use to shore up your retirement savings? Let what you earn work best for you.