Coronavirus and Retirement: Mistakes to Avoid with Your 401(k)
Anyone who got accustomed to viewing his 401(k) account balance move higher for a considerable length of time, the market’s ongoing drop and continued instability might be alarming if not downright startling.
You should not push yourself into doing something out of fear that could hurt your retirement plans.
The pandemic is undoubtedly arising a prime opportunity for wrong decisions related to 401(k), said Shon Anderson, a certified financial planner.
Sadly, not everyone will be able to avoid them, especially if his job or salary has been affected. Due to the virus pandemic, more than 16 million specialists have lost their positions. While it is still unsure when the strong monetary balance will return or when the stock market will recoup, here are a few things to avoid.
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 59½ years of age are allowed to withdraw up to $100,000 without the 10% early withdrawal penalty.
However, it is advised by the financial advisors to use this option as a last resort, even if you are in a financial crisis. Anderson shared that withdrawals from 401(k) funds must be avoided at all costs unless it is necessary to do so.
Cashing out will hurt
There are a few things that can occur if you sell your investments regardless of whether individual stocks or a target-date fund and move the money to the cash account. 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 will be the condition of the stock market 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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