I’m Over 55. What Should I Do with My 401(k) the Rest of 2020? - 401k Maneuver

I’m Over 55. What Should I Do with My 401(k) the Rest of 2020?

If you are over 55 and are unsure what to do with your 401(k) right now, keep reading for 7 things you can do in the remaining months of 2020 that may maximize your 401(k) this year.

#1 Contribute as Much as You Are Able

 what to do with 401(k) if over 55

Robert Shiller, global economist and 2013 Nobel Laureate in economics put it best…

 what to do with 401(k) if over 55

While 2020 has been rocky and packed with uncertainty, it’s important to keep your eye on the future and keep saving for retirement…if you’re able to. 

Every little bit saved now helps come retirement. 

Before you cut back on your contribution, see what you can do to keep contributing (or increase your contributions). 

That might mean…

  • Making cuts in monthly spending. 
  • Cutting back on how much money you are gifting or lending your kids or grandkids. 
  • Getting a second job and using the money from your side hustle to live on so you can max out your contribution limits.

#2 Take Advantage of 401(k) Catch-Up Contribution Limits

 what to do with 401(k) if over 55

Employee 401(k) contribution limits for 2020 have gone up from $19,000 in 2019 to $19,500. This applies to 401(k), 403(b), most 457 plans, and the federal Thrift Savings Plan. 

For those age 50 and older, the 401(k) catch-up contribution limit will also increase $500–from $6,000 in 2019 to $6,500 in 2020.

This means if you’re 55 and over, and need to catch up on retirement savings, you’ll be able to save $26,000 in your 401(k) in 2020. 

How much you can realistically contribute to your 401(k) depends on how much you earn and the amount of debt you carry, among other factors. 

Even if it’s a stretch, do what you can to save as close to the 2020 401(k) contribution catch-up limits as possible. 

#3 Reconsider Your Risk Tolerance  

 what to do with 401(k) if over 55

There’s a common belief of investing that says that if you want safety and security, you have to sacrifice good returns. 

This belief can be very costly–especially if you’re 55 and over. 

If you want your portfolio to grow, you want to hold both stocks and bonds. 

Morningstar reported that, “Since World War II the S&P 500 stock index has averaged a 11.1 percent return per year, which is 7 percentage points more than the CPI. Even if future returns don’t match those gains, equities are still likely to outperform other assets over the long term.”¹

According to Morningstar’s Head of Retirement Research, David Blanchett, “A 50-50 stock and bond mix, which gives you growth and income, is a good starting point for retirees.”²

Other advice often given to investors closer to retirement is to build up cash savings so if the market takes a dip, they have cash on hand and can avoid tapping into their depleted investment portfolio. 

The downside to cash is that most money market accounts pay little to no interest. 

So, if you’re cash rich, you risk losing value due to inflation. 

And, if the market is doing well, you want to be more aggressive so you can earn more money on your investment. 

While it’s important to reallocate your investments per your tolerance to risk, if you’re 55 and over and if you are too cautious, you risk coming up short when you retire because you aren’t able to maximize growth

Click here to schedule a 15-minute complimentary 401(k) Strategy Session with one of our advisors to see how professional management may help you manage risk pre-retirement.  

#4 Avoid Target Date Funds

 what to do with 401(k) if over 55

A majority of retirement account investments are in target date funds (e.g., 2020, 2030, or 2045 funds), also called lifestyle funds and retirement date funds

They are structured to automatically reallocate as you move through different life stages. 

As you age toward your target retirement date, the funds shift toward more conservative investments to protect your money. 

For many 401(k) investors, this sounds like a win-win because you invest your money, and let it do its thing until retirement. 

But target date funds fail to take into consideration that not all investors are created equal

If you plan to retire in 2050, you’re told to select a 2050 fund. 

If you are older and plan to retire in 2030, you’d select a 2030 target date fund. 

What this means is investors are grouped solely based on their expected retirement date–location, age, profession, salary, risk tolerance, goals, and objectives are NOT taken into consideration.

Basically, investing in target date funds and not actively managing your retirement account is equivalent to saying there’s a one-size-fits-all investment strategy that works for everyone. 

That doesn’t pass the common sense test, does it? 

Another reason we recommend avoiding target date funds is because they may increase risk exposure for investors over 55. 

 what to do with 401(k) if over 55

An article titled Global Financial Crisis and the Performance of Target-Date Funds indicated that on average, target date funds (like 2030 or 2040 funds) invested 75% in stocks, generating average losses of over 30% during the 2008 financial crisis. 

Investors planning to retire in 2010 suffered significant losses because 2010 target date funds increased their common equity exposure in 2007.³

Morningstar analyst Jeff Holt recently commented…

 what to do with 401(k) if over 55

By quarterly rebalancing your retirement account, you’ll lower the risk of your account underperforming due to target date funds that may not manage downside risk.

It seems like a simple solution, yet:

  • Over 80% of retirement plan participants fail to rebalance⁵
  • 92% have no idea what they’re paying in fees⁶
  • Only 9% have set up auto-rebalancing features where they’re available⁷

If you are currently in a target date fund, we suggest moving away from this option and better utilizing all the options available in your workplace retirement plan. 

Or, at the very least, quarterly rebalance your account. 

Check out our guide 5 Ways Target Date Funds Fail to Live Up to Their Promise.  

#5 Rebalance Your 401(k)  

 what to do with 401(k) if over 55

If you aren’t rebalancing your account allocations, you may be missing out on earning more and keeping more of your hard-earned retirement savings.

Because unmanaged allocations may experience much larger losses in down markets and may miss the opportunity for growth during good markets. 

We recommend rebalancing your account allocations every quarter, or four times a year. 

This will ensure you regularly course correct and stay on track to meet your retirement goals

#6 Part-Time Workers May Participate in 401(k)s

 what to do with 401(k) if over 55

If you are 55 and over and you have a part-time job where your employer offers a 401(k) plan, you may qualify to enroll in a 401(k) starting in 2021.

Under the SECURE Act, which went into effect January 1, 2020, long-term, part-time workers who have worked at least 500 hours per year for at least three consecutive years or those who have worked one full year with 1,000 hours clocked will be eligible to participate in their employers’ 401(k) plans. 

The new rule does not apply to collectively bargained employees. 

While this SECURE Act change does not take effect in 2021, there’s no time like the present to inquire with your part-time employer and plan for next year. 

Check out our guide and discover 10 Ways the SECURE Act May Impact Retirement Savings

#7 Seek Third-Party Expert Advice  

 what to do with 401(k) if over 55

A recent Morningstar report shows that participants who received expert guidance had as much as 40% more income during retirement versus those who received no help at all.⁸ 

What would your retirement lifestyle look like if you had 40% more income than planned

Would more monthly income create more ease and happiness? Would you be able to do more of the things you dreamed of rather than working a part-time job? 

Chances are 40% more income  may make a huge difference. 

Check out our retirement calculator to see how much you may have at retirement and calculate how professional help may improve your future retirement income.

If you’re hesitant to reach out for advice because you think your account balance isn’t big enough, or you think you’re too close to retirement to get help, don’t let that stop you! 

401(k) Maneuver provides professional account management to help you grow and protect your 401(k).

Our goal is to increase your account performance over time, manage downside risk to minimize losses, and reduce fees that harm your account performance

There are no time-consuming in-person meetings and nothing new to learn…and you don’t have to move your account. 

Simply connect your account to our secure platform, and we regularly rebalance your account for you. 

If you have questions about your 401(k) or if you need help, we’re here for you. Click below to book a complimentary 15-minute 401(k) Strategy Session with one of our advisers. 

Book a 401(k) Strategy Session


  1. https://www.consumerreports.org/retirement-planning/how-to-protect-your-retirement-savings-from-inflation/
  2. https://www.consumerreports.org/retirement-planning/how-to-protect-your-retirement-savings-from-inflation/
  3. The Global Financial Crisis and the Performance of Target-Date Funds in the United States – October 1, 2011
  4. Special Report: Fidelity puts 6 million savers on risky path to retirement, Reuters.com March 5, 2018
  5. Boost your 401(k) Returns by Rebalancing, 401khelpcenter.com
  6. Over 90% of Americans make this 401(k) mistake by Maurie Backman for The Motley Fool
  7. http://aon.mediaroom.com/news-releases?item=136959  
  8. David Blanchet, Morningstar Analyst 2014, “The Impact of Expert Guidance on Participant Savings and Investment Behaviors”
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