Retirement accounts (including 401, 403b, 457, TSA, and IRA investors) have been ravaged by coronavirus market turmoil. Now, American workers are desperate to know how to manage their 401k effectively (SOURCE: What investors search for during COVID-19, Samantha Russell).
The answer is not the same for every person. Your circumstances are personal, but here are some considerations as you plot your next move.
When you have lost your job, do not ignore your retirement plan
If you have lost your job like millions of Americans in recent weeks, there are several considerations for your retirement plan:
Will you need the funds in the near-term?
If you think you will need a portion of your retirement account now, there are new distribution options that are less punitive for payback and taxes owed. We’ve detailed these in our CARES Act Resource Guide.
Okay for now, but not sure after that?
Ideally, you will have some time to adjust and if the economy recovers your position will be safe. If there is a portion of the funds that you may need at some point in the near- to mid-term, review your investment mix based upon those needs. Your level of risk may need to be adjusted.
What is the best home for your retirement account long-term?
There are a series of considerations to determine the appropriate home for your retirement account if you have been separated from service. The appropriate place may be right where it is, or you may decide to move the account. We have a decision tree that can help you to evaluate your next move.
Do You Need a 401k Loan?
It is never ideal to borrow against future retirement, but we aren’t necessarily living in utopia right now. Make sure to consider the alternatives before taking out a loan against your retirement savings. If you are no longer working for the company attached to the retirement plan, the loan is probably not an option. And if you are likely to lose the job, the loan would probably have to be paid back at an accelerated pace. Still, the CARES Act offers additional favorable terms for 401k loans if you can demonstrate an economic impact from COVID-19.
Evaluate Your Investment Strategy
Some retirement investors aren’t sure they have an investment process. You may have picked your investments based on their recent return record during periods of positive stock returns. Make sure you have a well-diversified investment strategy that fits with your long-term retirement needs.
It’s not ideal to scrap a plan during difficult times. If you don’t have a plan, though, there’s no time like the present to adjust as is appropriate. Not sure where to start? Discuss your options with a financial planner.
Stay the Course
If your investment choices fit with your risk and long-term perspective, a trigger-finger for adjustments may not work in your favor. Remember that you don’t have a crystal ball for what is next, and it is very difficult to time your entry into and out of markets.
Accelerate 401k Contributions
If you feel your job is secure and you have adequate emergency reserves with a solid financial plan, you might consider bumping up your retirement savings. Increasing your investments during a downturn may allow you to buy more shares at a lower price. Timeframe matters, but for long-term investors, downturns can represent opportunities.
If you have already maxed out your planned contribution across the year, you may choose to make more of that investment earlier. For most plans, you can complete your contributions before year-end, so you might not be precluded from accelerating your investments if you were on track to max out.
Nearing Retirement? Revisit Your Retirement Outlook
Bear markets can feel particularly devastating to those who are nearly retired because they can be. But you won’t know the downturn’s impact to your retirement picture without a review of your retirement picture. A refreshed retirement analysis can help you to see how things have changed. Look and modify your outlook accordingly.
Make Sure You Cover the Basics
Sometimes the most important actions are the most basic:
- Review your beneficiaries and make sure they are up to date and in-line with your expectations and estate plan.
- Don’t leave “zombie accounts” at old employers neglected, in cash, or inappropriately invested. It’s okay to leave an old retirement account where it is if it meets your needs, but not if it’s too much work to know the appropriate next step.
- Save to get your match if you have the opportunity to receive one.
Take Control of Your Investment Account
Taking control of your account doesn’t mean you have to scrap everything. Just make sure you’re in control of your decision-making and that those decisions fit with your short-term and long-term financial plan. Not sure where to start? A financial planner can help to affirm where you’re on track and revise when things aren’t a good fit.
We’re happy to discuss this with you in a complimentary initial call.
Melissa Joy, CFP®, CDFA® is the President of Pearl Planning and a Wealth Advisor for Raymond James Financial Services. Reach out for a call today at 734.274.6744. Address: 8031 Main St. Suite 302 Dexter, MI 48130