Get your retirement plans moving in the right direction

The impact of COVID-19 on the stock market and economy may have upended your retirement plans. Here are steps to get them back on track:

1. Review your Social Security strategy. Social Security will likely be a pivotal part of your retirement income, so it's important to plan when you're going to start claiming benefits. You can start taking it at age 62, but your benefits will be permanently reduced by 25% or more. You'll receive your full benefits at your full retirement age, generally between ages 66 and 67. But if you can afford it, wait until age 70. That's because every year that you delay your benefit beyond your full retirement age until age 70, your benefit goes up 8%.

2. Consider a Roth conversion. If your retirement savings are heavily invested in tax-deferred accounts, such as 401(k)s and IRAs, you may want to take advantage of their diminished value and convert to a Roth IRA. You'll pay the taxes now instead of in retirement, and your tax bill will be based on the value of your account when you convert.

"Let's assume that you were planning to convert $100,000 in 2020 and that $100,000 is now worth just $70,000," says Evan T. Beach, wealth manager at Campbell Wealth Management. "Converting the lower amount will not only lead to a lower tax bill but also allow the $30,000 rebound, whenever it comes, to be tax-free."

3. Delay major expenses. Financial advisers say we should put the brakes on major expenses, including kitchen and bathroom remodels, while we give our portfolios some time to recover. If you're close to retirement, you'll be able to use these remodeling funds to increase the amount you're saving. And if you're already retired, putting those expenses on hold will help you avoid taking withdrawals from a reduced portfolio.

4. Follow the 4% rule. If you're near retirement or recently retired and you have a well-balanced and diversified portfolio, you should be in a good position to use a strategy known as the 4% rule.

It works like this: You withdraw 4% of your portfolio the first year of retirement. Each year thereafter, you increase the dollar amount of your annual withdrawal by the previous year's inflation rate. For example, if you have a $1 million nest egg, withdraw $40,000 the first year of retirement. If inflation that year is 2%, in the second year of retirement you boost your withdrawal to $40,800. If inflation jumps to 3% in your second year of retirement, the dollar amount for the next year's withdrawal also rises by 3%, to $42,024.

This formula has its critics - some think it's overly conservative, while others believe it's too risky - but it has held up through other tumultuous periods, including the Great Recession of 2008.

Robert Niedt is an online editor at Kiplinger.com. For more on this and similar money topics, visit Kiplinger.com.

Caption: Dreamstime