From job layoffs, furloughs and shuttered businesses—the COVID-19 pandemic has undoubtedly impacted our economy, forcing many to make the hard decision about whether or not to dip into their retirement savings to pay the bills and put food on the table. In fact, research from MagnifyMoney found three in 10 Americans withdrew money from their retirement savings and more than half who did used the money to cover daily expenses like groceries and bill payments.

In addition to withdrawing money from their retirement savings accounts, some are decreasing or pausing contributions to them. FinanceBuzz found 27% of Americans have decreased the amount of money they are setting aside for retirement savings or stopped saving for retirement altogether.

It’s important to remember that everyone’s financial situation, retirement timeline and immediate needs are different. However, there are a few alternative loan options to consider before making the decision to withdraw money directly from your retirement accounts. 

• 401(k) loan: Unlike a withdrawal, a 401(k) loan allows you to stay invested in the market and the interest you pay with your loan payment goes back into your retirement plan. The downside is that you are not investing as much money in the market as you were prior to the loan and the maximum loan amount is $50,000.

• Personal loan: With interest rates at an all-time low, a personal loan gives you the money you need to cover expenses without high interest rates. But be sure you can make your payments – otherwise, you may experience serious financial consequences.

If you have already withdrawn money from your retirement savings accounts, there are some new relief measures that could help you recover. Under the Coronavirus Aid, Relief and Economic Security Act (CARES Act) the federal government has implemented new tax laws to help ease the burden and limit the penalties for withdrawals as long as you qualify for the exemption.

• Prior to COVID-19, an individual was taxed 10% on early distribution from a retirement plan or IRA. This fee was waived under the CARES Act up to withdrawals of $100,000.

• If you withdraw from a retirement account, you are still subject to income tax; however, it is now spread out over the next three years. Prior to the CARES Act, you had to pay taxes in the year the withdrawal took place.

• You can repay all or part of the amount of a coronavirus-related distribution to an eligible retirement plan as long as you complete the repayment within three years of the date the funds were received.

If you have not been financially impacted by the pandemic, it is important to continue saving for your retirement. Also, make sure you are not missing out on an employer contribution match.

Retirement planning is crucial for everyone’s future and can be a confusing and emotional experience—even when there is not a pandemic impacting the economy. It’s important to work with an advisor who understands your retirement goals and can take the emotion out of making smart financial decisions. Your future self will thank you.


Mary Lucas is senior vice president and director of financial planning for UMB Bank.