Worried about your 401(k) during the pandemic? Here’s what you can do

Personal Finance,

Disclaimer: Upstart is not a financial advisor, the following content is for informational purposes only.

We’re living in unprecedented times. The global coronavirus pandemic has impacted virtually everyone in one way or another. Many are facing a great deal of uncertainty about their job, income, expenses, debts, retirement, and savings. More than 22 million Americans have filed for unemployment in the past month—a staggering and unheard of figure. 

As the economy and the stock market weakens, millions of Americans are wondering how coronavirus will impact their 401(k) investments. For many, it is their primary source of retirement savings.

Here are some tried-and-true tips on how best to manage your 401(k) accounts, even during this pandemic. 

Look at the big picture 

First, keep in mind that 401(k) plans are designed for long-term savings and do not take a day-to-day trading approach. While your balance may be down, it may also increase as the market eventually recovers. Try to avoid any rash decisions like early withdrawals. Remember that we are living through a moment in time, and your account reflects that. 

Review your account

As painful as it might be, this is a key time to review your account to ensure that you have enough money stashed away to cover six to 12 months of living expenses. With the rapid and steep decline in equities over the past few weeks, your account’s asset allocation is likely well below your target allocation. But this doesn’t mean you should be pulling out your 401(k) assets, nor should you stop contributing to it if you still have the means. 

Avoid rash decisions

Most financial advisors would agree that even those who are near retirement should continue contributing to their 401(k) if they can. If you are still employed, your income is relatively stable, and you have little debt, then continue contributing to your 401(k). You should contribute at least up to the company’s matching amount and max out if you can. If you are between the ages of 20 and 50, and are planning to retire in 15 or more years, there may be no need to shift funds away from your 401(k) plan at all.

Increase or establish your emergency fund

Now, more than ever, is an important time to reevaluate your emergency fund. If you don’t have one, consider starting one to the best of your ability. Start by listing all your expenses and your take-home pay. This will give you a clear picture of what you’re spending versus what you’re actually keeping. The goal is to determine how much money you need to cover your living costs each month. You should aim to save enough money to cover three to six months of your living costs. 

To do this, you will need to create a budget so you can funnel some money to savings every month. I recommend using a free online tool to help track all of your transactions. Look for one that allows you to link all of your accounts in one place, so you can easily see your spending and saving habits. Even if you only save a little bit every month, it will be a wise investment over the long run. Importantly, it will also get you on the right path to financial responsibility. 

A last resort

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides relief to businesses and people financially impacted by the pandemic. It includes two provisions that give 401(k) plan participants the option to access their account funds. Simply put: your 401(k) plan can be a source of funds, if needed. However, you should consider only tapping into this if it is completely necessary and there is no other option. 

Experts say the market is extremely volatile, and fears surrounding the coronavirus are predicted to rattle the global economy even more so. Whether you’re taking a distribution or a loan, you’re effectively taking money out of the market. In addition, your retirement investment portfolio has likely decreased in value recently, which means you’re likely locking in investment losses rather than gains. This is why other sources of income should be tapped before drawing down retirement.

While also contributing to an emergency fund for future scenarios, try to to “stay the course” and ride out the ups and downs of the market

We understand these times are trying, economically and in so many other ways. As the situation with COVID-19 continues to rapidly change, our primary focus is to best meet the financial needs of our borrowers. For questions or concerns, our customer support will be available via email at support@upstart.com.

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