Though the unemployment outlook improved considerably in May from where it stood in the two months prior, these are still unprecedented times and the COVID-19 pandemic is not yet over. Noting this, there’s likely to be more challenging times ahead for Americans as recovery continues to materialize.
Americans are continuing to do what they need to do to make ends meet, whether it be from claiming unemployment or exploring alternative means of paying the bills. Recently, we came across a 2020 Planning and Progress Study from Northwestern Mutual that detailed the ways hard-hit Americans are getting by. In the spirit of helping you or a loved one power through these times, we thought it would be fitting to share the results. Here’s a closer look:
Savings Accounts (25 Percent)
About 25 percent of respondents have identified that they’re dipping into their savings accounts to get by. And this is a good thing, for a few reasons. One, it’s proof that many Americans have some sort of savings account they can fall back on when necessary, as most financial experts suggest having at least three months worth of expenses tucked away in case of an emergency. And two, these times are precisely what savings accounts are meant for. While it’s always fun to splurge on something nice with money you’ve tucked away, now’s the time to tap into a savings account without having buyer’s remorse.
Bottom line: It’s the ideal option.
Borrowing (15 Percent)
Nearly 15 percent of those surveyed have stated they’re borrowing from friends or family that have the means to help them through these times. While ideally you should have a savings account to fall back on, borrowing from family or a friend can have its benefits over taking out a home equity or other type of loan. For starters, your family member or friend might not ask you to repay your debt with interest, which can present a long-term savings.
Retirement Savings (10 Percent)
While we normally don’t suggest withdrawing funds from your 401(k) retirement savings, the CARES Act that was passed in late March makes doing so much more manageable, making it a more attractive option as we continue to weather the COVID-19 storm.
Specifically, the CARES Act allows Americans to withdraw up to $100,000 from their 401(k) or IRA without penalty. It’s nice to have this option, but the drawback is that it’s less money that will work for you in the market to grow your savings. Keep in mind that the stock market usually averages about a 9 to 10 percent long-term return on investment. And while the stock market is in disarray right now, retirement savings are long-term, and not short-term, strategies.
So borrowing from your retirement savings is an option, but if you have other options that can better protect these savings and continue to allow them to grow, we’d strongly suggest you utilize those first.