What Should I Do with My 401(k) Right Now?

If you are wondering What should I do with my 401(k) right now?–you aren’t alone. 

Millions of 401(k) investors are wondering the same thing. 

Recent market volatility. Economic instability. Fear of not being employed in the near future. 

The sense of powerlessness over this entire virus situation and your financial future. It’s very real. 

With the uncertainty of what the next few months will look like–as we come out of our homes and back to some resemblance of normalcy–it’s easy to let fear dictate our financial decisions.  

Before we dive in and answer, What should I do with my 401(k) right now?, we want to share a story with you about what happens when fear drives retirement investment decisions. 

A Warning from the Past: The Real Cost of Fear-Based Decisions

 what should I do with my 401(k) right now

Take a moment to read this fictional story below…

Up until 2007 someone, let’s call him Adam, was confident in his 401(k)’s performance…then 2008 hit, and he lost 37% of his total retirement savings

Instead of staying on course and waiting for the market to bounce back, Adam put his IRA in cash and moved his 401(k) assets into a mutual fund comprised of “safe” bonds. 

The market continued to dive in early 2009, and Adam felt really good about his decision. 

He was so confident, he even stopped contributing to his 401(k). 

He mentally checked out, and for the next few years, he didn’t open his 401(k) statements when they arrived.  

Sadly, Adam missed out on the opportunity to recover from his losses

From March 9, 2009, to January 4, 2010, the Dow Jones Industrial Average climbed to 10,583 points. 

But Adam was invested in bonds, so he only saw a 2% growth. 

The market continued to rebound throughout 2011 and 2012. The Dow Jones Industrial Average closed on December 30, 2012, at 12,217.56 points.

Adam was still sore about his 2008 losses. 

Even though the current returns from his bond investments were low, he didn’t want to run the risk of buying into the market at all-time highs and then losing it all over again. 

Adam never recouped his losses because he missed out on the opportunity to do so

And, when he retires, chances are, he will come up short on the amount of money he needs. 

There were a lot of Adam’s after the 2008 market crash.

And, sadly, there may be even more of them after the dust settles from COVID-19–when the real economic impact of the virus will be made clear.  

This story of making decisions from fear should be a lesson to all 401(k) investors asking What should I do with my 401(k) right now??

Keep reading below to find out what options are available to you and why some may not be in your best interest. 

Keep Your Contribution Limits the Same 

 what should I do with my 401(k) right now

If you have the money to contribute to your 401(k), continue paying into it each pay period. 

In other words, leave your 401(k) alone, and keep on keeping on. 

If you are worried about another big dip in the market, remember, you’re losing money on paper

You don’t technically lose any money until you sell. 

When you continue (or even increase) your contributions, you’re going to get more out of your retirement due to dollar-cost averaging. 

This strategy simply means you invest no matter what the market is doing. 

You buy more shares when the market is down, and less when the market is higher. This and time can build wealth,” says Mark Sorensen, Chief Investment Officer at 401(k) Maneuver.

He adds, “100% of the time, every market correction–every bear market–has always come back 100% of the time, and there’s no reason to think this time will be any different.” 

Sometimes in times of uncertainty, the best thing to do is nothing–just keep contributing–and know that your patience will be rewarded over time. 

[Related: How Does the CARES Act Impact My 401(k) in 2020?]

Resist the Urge to Defer Your Contributions  

 what should I do with my 401(k) right now

If cash is tight or if your spouse has lost his/her job, think twice before you completely stop contributing to your 401(k). 

Instead, if you absolutely have to, pull back the amount you’re contributing.

If you are currently putting in 15%, scale back to 10% or 12% to free up extra cash. 

A word of caution: be very clear on exactly what you’re going to use that money for. If you’re pulling back on your contribution amounts “just to have more money” in your bank account, you are going to spend it somewhere. 

It’s one thing if the extra money is going to help pay your mortgage, car, or credit card payments. It’s another thing to not fund your retirement savings so you can order more UberEats.  

[Related: 7 Tips on How to Manage Your Finances Right Now

If You Are Able, Contribute More to Your 401(k) 

 what should I do with my 401(k) right now

If you are sitting on extra cash and have money in savings, consider increasing your 401(k) contributions right now.

While many states have opened up, and more are to follow in the coming weeks, most American’s still aren’t spending like they used to. 

Could you increase your contribution by 1%, 2%, or even 5% with the money you’re saving by not having that morning coffee at the drive-through or all those dinners out with friends? 

Crunch your numbers and see what’s possible. 

 

Think Twice before Taking Out a 401(k) Loan 

 what should I do with my 401(k) right now

If you’re asking, What should I do with my 401(k) right now?–or more specifically, Should I take out a loan from my 401(k)?–take heed…

If you’re in need of an emergency cash injection, your 401(k) should be your last option because it may cause irreversible damage to the amount of money you have at retirement.  

According to the Center for Retirement Research at Boston College, early withdrawals reduce overall 401(k) assets for retirement by 25% on average.¹

Even with the waved penalties the CARES Act eliminates, borrowing from your retirement to fix a short-term problem may be detrimental to your financial future.  

This legislation was meant for Americans to be able to access cash they need.  

The CARES Act doubles the borrowing limit on your 401(k) from $50,000, or 50% of the vested account balance, up to $100,000, or 100% of your vested account balance. 

This provision allows qualified participants to take a loan from a qualified employer plan within 180 days from the bill’s date of enactment, March 27, 2020.

Technically, you are supposed to show hardship as a result of COVID-19, but this is a self-certification process, so you might not need to prove much. 

Be aware that each plan administrator will treat this differently. Some may require more documentation than others. 

In addition, a 401(k) loan may become a taxable distribution if you leave the company or if you are let go before paying it back

Should this happen, it may leave you financially worse off than you are now

Therefore, it is advisable not to borrow from your 401(k)–and instead look for other options for your short-term cash needs

Potentially Maximize Your Retirement Income 

 what should I do with my 401(k) right now

No matter where you are in your retirement savings journey, 401(k) Maneuver is dedicated to helping you learn AND correct 401(k) mistakes that may lead to feelings of hopelessness about retirement.

We invite you to check out our no-cost 401(k) Masterclass Videos.

In just 13 minutes, you’ll discover 3 strategies that may…

  • Improve Your Account Performance – Have more money, creating a fulfilling retirement.
  • Manage Risk to Minimize Losses during the Bad Markets – Keep more of what you have made.
  • Reduce Fees That Harm Account Performance – So more of your investment grows for your retirement.

We regularly post videos with financial information and updates. Check us out on YouTube.

Watch Videos

Sources:

  1. http://crr.bc.edu/wp-content/uploads/2015/01/IB_15-2.pdf
0 0 votes
Article Rating

401(k) Maneuver™ is offered by Royal Fund Management, LLC, which is registered as an investment adviser with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. Royal Fund Management, LLC, is not affiliated with or endorsed by NASDAQ.

All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals, and economic conditions may materially alter the performance of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client's investment portfolio. There are no assurances that a client’s portfolio will match or outperform any particular benchmark. Asset allocation and diversification do not ensure or guarantee better performance and cannot eliminate the risk of investment losses. Projections are based on assumptions that may not come to pass.

Images and photographs are included for the sole purpose of visually enhancing the website. None of them are photographs of current or former clients. They should not be construed as an endorsement or testimonial from any of the persons in the photograph.

All third-party trademarks, including logos and icons, referenced in this website and our content, are the property of their respective owners. Unless otherwise indicated, the use of third-party trademarks herein does not imply or indicate any relationship, sponsorship, or endorsement between 401(k) Maneuver and the owners of those trademarks. Any reference inside this website or content to third-party trademarks is to identify the corresponding third-party goods and/or services.

0
Would love your thoughts, please comment.x
()
x

Select a Date from the Calendar below

UPDATE YOUR 401(k) ACCOUNT

Select a Date from the Calendar below

UPDATE YOUR 401(k) ACCOUNT

Have questions? Need help?

Book Your Complimentary

15-Minute 401(k) Strategy Session


logo

Looking for tips that might maximize your retirement
savings and help you be a better steward of your money?

Subscribe to our 401(k) Blog

The go-to-source for your retirement investing and saving tips

401(k) Investing Masterclass

Learn 3 Strategies That May SUPERCHARGE Your
401(k) Performance

13 minutes may change the direction of your retirement future

5 401(k) Accounts Mistakes that May Negatively Affect Retirement Income

Download Your Copy Today

*Your privacy is important to us. We do not rent, sell or share your information.


Why Account Balancing & Allocation May Affect 401(k) Performance

Download Your Copy Today


*Your privacy is important to us. We do not rent, sell or share your information.


The 5 Top Costly 401(k) Rollover Pitfalls

Download Your Copy Today

*Your privacy is important to us. We do not rent, sell or share your information.

Make the Best Decision for Retirement:
Understanding the Different Types of
Financial Advisor Licenses

Download Your Copy Today

*Your privacy is important to us. We do not rent, sell or share your information.


How Popular Advice On Target Date Funds May Be
Working To Undermine Your 401(k) Retirement Savings

Download Your Copy Today

*Your privacy is important to us. We do not rent, sell or share your information.


3 Things That May Supercharge Your Future
401K Performance...Even In a Down Economy

Download Your Copy Today

*Your privacy is important to us. We do not rent, sell or share your information.