401k advice

[Antonio1981]

So I just found out today that my company will not be able to matching employee contributions to our 401k retirement plan for the 2020 fiscal year.

 

Should I take a year off making contributions to my account? With no company match and the volatile stock market, is it safer (or wise) to put my contribution for the year into a savings account? My 401k has dropped $150k in just 2 short months! I'm trying to stop the bleeding as best I can even though I understand that markets go thru cycles - especially with this pandemic that is wreaking havoc on our economy.

 

I am 56 and have another decade before retirement is an option. I appreciate any advice that is shared.

[Kevin Slater]

I vote for continuing to contribute. The upshot of dollar cost averaging is that you invest in down markets as well as up markets. Think of how many more shares you'll be getting at these prices!

 

Kevin Slater

[+ sam.fitzpatrick]

The best thing to do is to continue making contributions. The deferred taxes helps and hopefully the market will rebound by the time you retire.

[Islesguy]

Can't argue with either response above. You have 10 years until retirement and 15 until you are required to withdraw. If you are allowed to pick your investments, a good etf or low load mutual fund focusing on companies that help people communicate online or medical supply companies could be beneficial in the short-term.

[+ sniper]

Your 401k should have multiple fund options, including one that is cash or a money-market type fund. You can contribute but direct your contributions to that for now and then gradually move back into the market as it stabilizes. At 56 you should be shifting so a lower proportion of your portfolio is equities anyway.

[+ E.T.Bass]

Sorry to hear you are losing the match.

 

I agree with the prior comments.

 

In my case, I ought to re- balance, bond funds vs stock funds. But I hesitate in such uncharted waters as this pandemic. My bond funds are doing well. Stock market sentiment is obviously volatile.

[+ azdr0710]

long-term, long-term, long-term!!!

 

continue as you've been doing!!!

 

don't try to time the market (as tempting as it sounds)!!!

[+ augustus]

Keep investing. Even without the company match for now, you contributions are still pre-taxed which means for every dollar you put in, the net pay declines by about .75 cents.

[+ Topseed]

Keep contributing.

 

And don’t be lulled by your bond funds’ performance. I think interest rates will move up substantially, which is a negative for those funds.

 

Remember the early 1980’s when IRA accounts were still fairly new? All you had to do was open the front door at any bank, walk in, and buy a CD offering a 12 or 13% interest rate. Those days might well return. Should that happen, both equities and current bond funds will suffer. Have cash available for this.

Edited April 4, 2020 by Topseed

[Guest]

The conventional wisdom to keep investing is sound.

 

The only exception might be if you’re concerned about losing your job and don’t have other reserves in an accessible account. Then, diverting the contribution to a savings account is warranted.

[Guest]

I've not had a company match for awhile (I'm a loser for working for those companies) but that shouldn't affect your investing. Max out your 401k investments even with the down market right now. History has shown the market always recovers and it will always do better than a savings account long term. The money is pre-tax which can also help your overall tax burden so it's a win win. The max contribution is normally 19.5K a year for 2020 but at your age you can do a make up contribution of 6.5k for a total of 26k a year. I'm in the same boat and it's sobering to meet with my investment advisor who does modeling of how my money is going to last after I retire, which sadly is going to be a long time out, lol.

 

One of my biggest financial regrets is not investing more in my 401k during my 20's and 30's. But I was in love and he had a ton of debt which I took on to help. Right after I put almost 50k of his debt into an equity loan (he had 20+% credit card debt) he left me for a kid right out of college. After 12 years. Men suck.

[instudiocity]

The only people who die on a rollercoaster are the ones who jump off.. stay the course...

 

The Dow Low in Mar 2009 was 6547.05.. It came back to almost 30,000 before dropping 35% which was still triple the 2009 low.

 

You didn’t loose anYthing unless you sold your shares. If you did, now is a great time to buy back in.

[mike carey]

My 401k has dropped $150k in just 2 short months!

While the short term loss is alarming, it might add some perspective if you look at what it was worth in April 2019 rather than just at what it was worth two months ago.

[down_to_business]

Sorry to hear about your 401K balance. While it is a no brainer to invest in a 401K at least up until your full employer match, when that match is eliminated, the decision can be more complicated.

 

Here is my advice.

 

Stay invested and try to avoid looking at your balance(things may go down even more before they get better). Do not cash out unless absolutely necessary. Try to see the bright side of being able to buy investments on sale. Every dollar you invest today is buying more than that same dollar would have gotten you when the prices were higher just a few months ago.

 

Until the match returns, (if eligible) consider funding your ROTH IRA first, which should be $7000 ($6000 + $1000 for being over 50).

 

Make sure you have enough cash on hand in safety to cover 6 months of expenses. This should be in FDIC insured bank deposit (for example).

 

Next prioritize paying off debt for things like credit card balances if you have them.

 

Finally, if you have anything left after this, continue to invest it in your 401K and immediately return to prioritizing 401k when/if your employer match is restored.

Edited April 4, 2020 by down_to_business

[+ Reisr30]

Great advice on previous posts. I have a bit of OCD and check my retirement accounts daily. I have learned to keep the long term in perspective since I have quite a while to go before I retire but it’s still difficult to not want to cash out when they drop so drastically..,

[mike carey]

An interesting tangent to this discussion, there are hardship provisions in our superannuation system that allow you to withdraw funds if you have to. Leave aside the fact that if you don't absolutely have to, when there is a drop in the value of the funds is not a good time to make a withdrawal, but the government has specifically allowed people to withdraw $10K this financial year (up to 30 June) and 10K next during the crisis.

 

Some real estate agents have written to tenants telling them they will not even consider asking landlords for rent reductions unless the tenant had investigated withdrawing retirement savings to cover costs they couldn't otherwise meet. The corporate regulator almost immediately put out a statement that real estate agents could face a $1m fine for doing that as it constituted illegal financial advice. You have to be a licensed financial advisor to give such advice.

[+ sniper]

The only people who die on a rollercoaster are the ones who jump off.. stay the course...

 

The Dow Low in Mar 2009 was 6547.05.. It came back to almost 30,000 before dropping 35% which was still triple the 2009 low.

 

You didn’t loose anYthing unless you sold your shares. If you did, now is a great time to buy back in.

 

Very few people bought in precisely at 6547 so that's not really a fair point of comparison. What was the Dow in, say June 2001? it was over 15,000. Someone who bought and held then saw a 40% return...over 19 years. That's about 2% per year.

 

P/E earnings are completely out of whack given the aging population and loads of corporate debt, and they also seemingly reflected the assumption that the Trump tax cuts would last forever. After all the stimulus spending there is no way taxes won't be going up in the coming years. And if it's personal taxes but not corporate taxes going up, that means less money for consumers to spend and less revenue for the companies.

 

Also, 10 years is NOT a long time frame. The idea that a 56-year-old should be getting more into stocks than they currently are is not a good one given they have less time to make up a large loss. We don't know what allocation he was starting from. If he's 100% in stocks, he absolutely should be shifting out because that's highly risky. If he's 20% in stocks, well sure ride it out.

There is a lot more room for the overall stock market to fall and still not be a "buy". There might be some short-term bumps based on stimulus, but I am bearish on the relatively near-term.

There might well be individual stocks that make sense to buy now, but the market as a whole will be taking a beating for a while.

[+ AntonGraza]

My company did the same thing to me a few years back to conserve cash by not matching to our 401k plan. I covered the matching % and stayed the course. I am the same age as you, just hold tight for now. Per @sniper comments, I re-balanced to be less in stocks when I was 55 last year, so I also took a hit, but I was somewhat shielded. We are still working! That is a huge plus. We will catch a drink together in a couple of years when we retire and by then we can actually be closer than 6 ft away.

[jawjateck]

401k plans vary widely. Some have limited investment options, outsized fees, and industry-lagging performance. These things matter. You should consider these issues when you make your decision.

[mike carey]

401k plans vary widely. Some have limited investment options, outsized fees, and industry-lagging performance. These things matter. You should consider them too as you make your decision.

+1

 

We've just had a royal commission into financial sector malpractice, and it's resulted in financial institution executives left and right having to fall on their swords. One of the things that came out was the sharp practices of, and high fees that bank and other for profit financial institution operated retirement savings funds charged. This was in stark contrast to 'industry funds' that are run as not-for-profits by various industry sector employers and unions in collaboration. They have lower fees and of the top 10 retirement funds, nine were industry funds. Since the RC, the for-profit funds have been haemorrhaging investment funds to the industry ones.

[+ ArVaGuy]

Keep making the contributions as @Kevin Slater noted with dollar cost averaging you are buying shares that will increase in value over time.

 

I‘ve “lost“ 20 percent since January and increased my cash position for the short term. The volatile market conditions will continue for the rest of 2020.

Edited April 4, 2020 by ArVaGuy

[+ RJD]

You didn’t loose anYthing unless you sold your shares. If you did, now is a great time to buy back in.

 

Exactly. It's only a paper loss until you cash out, then it's realized. Stick with it. Keep investing. I made that mistake in 2002 when the market bottomed after 9/11. To quote Julia Roberts in Pretty Woman, "Big mistake. Big. Huge." When the recession hit in 2008 I just rode it out, contributed the same amount to the same investments, gobbled up extra shares because of the lower prices and when the market rebounded it was a huge return. I'm the same age as the OP and in the same predicament, i.e., my current employer doesn't match the 401k contribution. Invest, invest, invest. I fully expect retirement age will be 69 or 70 by the time I'm ready to retire, so I have a good 13 years to make some gains.

[instudiocity]

Very few people bought in precisely at 6547 so that's not really a fair point of comparison. What was the Dow in, say June 2001? it was over 15,000. Someone who bought and held then saw a 40% return...over 19 years. That's about 2% per year.

 

P/E earnings are completely out of whack given the aging population and loads of corporate debt, and they also seemingly reflected the assumption that the Trump tax cuts would last forever. After all the stimulus spending there is no way taxes won't be going up in the coming years. And if it's personal taxes but not corporate taxes going up, that means less money for consumers to spend and less revenue for the companies.

 

Also, 10 years is NOT a long time frame. The idea that a 56-year-old should be getting more into stocks than they currently are is not a good one given they have less time to make up a large loss. We don't know what allocation he was starting from. If he's 100% in stocks, he absolutely should be shifting out because that's highly risky. If he's 20% in stocks, well sure ride it out.

There is a lot more room for the overall stock market to fall and still not be a "buy". There might be some short-term bumps based on stimulus, but I am bearish on the relatively near-term.

There might well be individual stocks that make sense to buy now, but the market as a whole will be taking a beating for a while.

15 second Internet search yielded this:

5/31/0110911.94

6/1/0110990.41

6/4/0111061.52

6/5/0111175.84

6/6/0111070.24

6/7/0111090.74

6/8/0110977.00

6/11/0110922.09

6/12/0110948.38

6/13/0110871.62

6/14/0110690.13

6/15/0110623.64

6/18/0110645.38

6/19/0110596.67

6/20/0110647.33

6/21/0110715.43

6/22/0110604.59

6/25/0110504.22

6/26/0110472.48

6/27/0110434.84

6/28/0110566.21

6/29/0110502.40

7/2/0110593.72

 

Your calculations are off. Plus your assumption is no additional funds were added over the intervening 18+ years. That negates the Holy Grail of Dollar Cost Averaging.

 

Two fallacies in your argument

[instudiocity]

Exactly. It's only a paper loss until you cash out, then it's realized. Stick with it. Keep investing. I made that mistake in 2002 when the market bottomed after 9/11. To quote Julia Roberts in Pretty Woman, "Big mistake. Big. Huge." When the recession hit in 2008 I just rode it out, contributed the same amount to the same investments, gobbled up extra shares because of the lower prices and when the market rebounded it was a huge return. I'm the same age as the OP and in the same predicament, i.e., my current employer doesn't match the 401k contribution. Invest, invest, invest. I fully expect retirement age will be 69 or 70 by the time I'm ready to retire, so I have a good 13 years to make some gains.

And remember SECURE Act passed in 12/2019 delayed Required Minimum Distributions from the year in which you turn 70 1/2 to Age 72.

[+ FrankR]

There is a lot more room for the overall stock market to fall and still not be a "buy". There might be some short-term bumps based on stimulus, but I am bearish on the relatively near-term.

There might well be individual stocks that make sense to buy now, but the market as a whole will be taking a beating for a while.

 

https://www.marketwatch.com/story/he-nailed-the-march-coronavirus-selloff-now-he-says-theres-another-30-to-go-before-the-stock-market-hits-bottom-2020-04-02?mod=home-page

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