Coronavirus and Retirement: Mistakes to Avoid with Your 401(k)
For anyone’s who’s used to viewing their 401(k) account balance move up, the market’s ongoing decline and continued instability might be startling—if not downright alarming. However, one should not push themselves into doing something out of fear because it might only hurt their retirement plans.
According to Shon Anderson, a certified financial planner, the pandemic is undoubtedly stirring up a prime opportunity for wrong decisions related to 401(k) to be made. Sadly, not everybody will be able to dodge them, especially if their job or salary has been affected.
Due to the coronavirus pandemic, more than 16 million specialists have lost their jobs. Since it is still unsure when the strong monetary balance will return or when the stock market will recover, we’ve written down a few things to avoid doing during this crisis.
Withdrawals are a big no-no
Under the newly-passed legislation to facilitate the economic impact of the coronavirus emergency, 401(k) plan members who are under 59 ½ years of age are allowed to withdraw up to $100,000 without the 10% early withdrawal penalty.
However, it is advised by various financial advisors to use this option as a last resort, even if you are dealing with financial distress. Anderson shared that withdrawals from 401(k) funds must be avoided at all costs unless it is extremely necessary to do so.
Cashing out isn’t a good idea
There are a few things that can occur if you sell your investments and move the money to a cash account regardless of whether they are individual stocks or a target-date fund. First of all, you will be selling your stock at a relatively low cost. Furthermore, you may pass up future gains.
Even though it is difficult to foresee what the condition of the stock market will be in the future, research shows that passing up the best performing days of the market, regardless of the bad days, can hurt your long-term returns.
Do not stop contributing!
While it must be taken into account that your employer may stop its contributions to your account due to its budgetary concerns, advisors have recommended the plan holders to proceed as usual.
While putting money into stocks that are dropping every day seems nonsensical, the same logic applies to not going for cash. You won’t know when to buy back the stock and would probably end up buying the stock at a higher price. That means you might miss out on potential gains during the period you cashed-out your stocks.
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