Worried about the state of your 401K? We all are. But there’s no need to panic. Chances are, you don’t need to use all of your 401K savings at once. If you take the right steps, your 401K investments will have a chance to recover. Below are five simple steps to help you rescue your 401K:
If you are close to retirement:
1. Delay your retirement. If you’re close to retirement, see if you can put in a few more years of work. This is especially important if your employer matches your 401K contributions.
If you retire in a declining market, you’re withdrawing money from an ever-shrinking 401K coffer. Your previous (bull market) payout calculations won’t work anymore, meaning that you risk ending up with very little very late in life.
2. Recalibrate your 401K withdrawal plan. If you have no choice but to retire, recalibrate your monthly expenses so that you don’t withdraw a larger percentage of your total 401K savings. Live off less for a while, then adjust when the market goes back up.
3. Keep contributing. It pays to rack up investments, even when the market is losing. When the market goes back up—historically, it always has—the investments you put in during hard times will work in your favor. If your employer matches your contributions, max them out. The tax deduction will also come in handy.
4. Don’t cash out. If the heavy tax penalties don’t make you think twice, the upcoming bull market—whether it takes two years or two months to arrive—will leave you empty-handed. Moreover, the funds are creditor-proof, and can’t be confiscated if you file bankruptcy.
5. Revise your portfolio. If you need the money soon, put is somewhere safe, like a money market fund. If you have a while until you retire, consider diverting your funds into traditional safe bets, like mutual funds or corporate stocks in stable industries. Consult your financial advisor for specific advice. Take an active role in diversifying and/or rebalancing your portfolio. It won’t adjust itself for hard times.
Bonus tip: IRAs can offer more flexibility and fewer fees than 401Ks, depending on your lifestyle needs. A Roth IRA, for example, allows you to take out contributions without taxes or penalties. Further research or financial advice will help you determine with 401K/IRA combination suits you best.