Should a Volatile Stock Market Affect Your Retirement Savings Strategy?

When the stock market takes a historic plunge like it did last week, you may be worried that your retirement savings is also taking a dive. But one expert says the best thing to do is stay calm and heed the advice of experts.

Last week, historic volatility hit Wall Street, resulting in two 1,000-point plunges that left the Dow Jones industrial average in a “correction,” a 10 percent decline from previous highs.

If you’re among the 72 percent of Americans who the American Retirement Association estimates are saving for retirement, that might have set off alarm bells. But running scared from bad news never gets anyone far in the countdown to retirement, according to ARA’s Chief Content Officer Nevin E. Adams, JD.

In the case of 401(k) plan participants, “it’s a loss on paper,” he said. “Over time the market does pretty well. There’s ups and downs. And if you look at the past few years, the market has been on a roll.”

According to Adams, you shouldn’t be worrying about your 401(k) every day—unless you’re on the “cusp of retirement”. The winning retirement savings strategy, he said, is to leave it to the pros while keeping a regular watch over your plan and staying calm. But since the latter is often easier said than done, Adams shared this tried-and-true advice for 401(k) plan participants:

Check your account balance and investment selections. This should be done at least once a year, although Adams said quarterly is the standard recommendation. Another opportune time to take this step is after going through a big life change, such as a divorce or relocation.

Change investment elections. Adams said it’s ideal to do this with the help of a financial advisor. Another investment alternative could be a target-date fund. According to Adams, this is “a fund made up of other funds, allocated among stocks, bonds, etc., by professional money managers with an eye toward your retirement date.”

Increase your current deferral rate. “With the market down, it might be a good time to buy investments at a bargain price,” said Adams. But “what [you] really should do is take the time to figure out how much [you need] to save in order to retire, and … save based on that goal.”

Invest in a financial advisor. Most people are not investment professionals and don’t have time to keep track of the stock market. That’s why Adams recommends that people work with financial advisors who can come up with a personalized strategy based on their needs.

In addition to this advice, Adams also suggested those planning for retirement take advantage of the IRS resource guide,  as well as tools from Financial Industry Regulatory Authority, America Saves, and Choose to Save.

Ultimately, Adams said, your 401(k) plan administrator’s website is the best place to visit as you work toward your retirement finish line. There you’ll find the financial facts, including your current balance and details about your specific plan and investment options, to inform your retirement research and decision-making.

His bottom-line advice: “It’s not that you shouldn’t do anything, but the thing you shouldn’t do is panic.”


(KaraGrubis/iStock/Getty Images Plus)

Cherise Bathersfield

By Cherise Bathersfield

Cherise Bathersfield is a contributing writer for Associations Now. MORE

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