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Protect your 401(k)

As the financial markets react to the coronavirus pandemic, you may be worried about the health of your retirement savings. Keep in mind that while these certainly are unprecedented times, history has proven that the worst thing to do during market volatility is panic.

You may be seeing a drop in your 401(k) balance now, but remind yourself that 401(k) plans are designed for long-term savings. When the financial markets eventually recover, your retirement plan will have the opportunity to recover, too. If you continue contributing to your 401(k) account throughout this crisis, you’ll be taking advantage of investing at a discount and giving yourself the potential for more gains later on.

Take action while waiting out the crisis

In addition to staying calm and riding out the market volatility, there are other steps you can take to protect the future of your 401(k) account:

  • Evaluate your investment choices. If you are using a target date fund, your money is already allocated into a diverse selection of underlying investments appropriate for your retirement timeframe. Check the target date you’ve chosen to ensure it matches your anticipated retirement age. If you have built your own investment strategy, take this opportunity to review your portfolio and make sure you have a diversified blend of investments that aligns with your age, risk tolerance, and goals. The closer you are to retirement, the more conservative your investments should be. Log in to your 401(k) plan’s website for more information about your investments or to manage your account.
  • Try to contribute more. The IRS 401(k) contribution limit increased to $19,500 for 2020. Plus if you’re age 50 or older, you can contribute an additional $6,500. Consider taking advantage of this opportunity to contribute more to your retirement plan this year. With the higher limit, if you’re under 50 and earn $80,000 a year, you could set your contribution rate to 24% to maximize your tax savings. Even if you can’t max out your contributions, try to bump up your current rate by one or two percent.
  • Look for ways to free up extra cash. Instead of turning to your 401(k) balance for emergency withdrawals or loans, make sure you have a cash reserve available. Government and health agency recommendations to stay at home may have lowered your expenses for gas, dining out, going to the movies, traveling, and other nonessential purchases — making this the perfect time to build up your savings. Try moving any surplus from your checking account into a savings account on a regular basis.
  • Reduce your debt. Seven in 10 working Americans say their nonmortgage debt has impacted their ability to save for retirement.* If you’re one of them, take steps to reduce your debt, like transferring balances from multiple credit cards to a single, lower interest rate card. Or consider refinancing your mortgage or auto loan if better rates are now available. Set a monthly budget that includes your debt reduction payments, and stick to it. Also, make every effort to stop adding to your debt or else your payments won’t be able to keep up with your spending. If you’re facing extenuating circumstances preventing you from making payments, call your lenders and explain your situation. You may be able to negotiate a settlement or other favorable terms.

Buried in debt?

Find out how much more money you could be saving for your future if you paid off your debt a little faster.

Sources: “How to Protect Your 401(k) From the Coronavirus,” U.S. News & World Report (money.usnews.com), March 12, 2020.
“70% of Americans Aren’t Saving for Retirement for This Reason,” The Motley Fool (www.fool.com), July 1, 2019.
“It’s Official: Most Americans Are Currently in Debt,” The Motley Foot (www.fool.com), February 15, 2018.
*Employee Benefit Research Institute, 2019 Retirement Confidence Survey, www.ebri.org.