Retirement plan? What retirement plan? I know. It’s been pretty disheartening of late.
Does that mean we’re going to stop planning? Nope. We’re moving ahead with our plan to invest in mutual funds with long-term growth potential.
Still, with the pandemic causing so much grief and suffering, it’s hard to focus on financial goals. I had to shelve my statements for months. Yet it’s never a bad time to concentrate on what’s important to you and your family.
First, avoid distractions and ask yourself the questions that are long-term in nature. When do you want to leave the workforce? How much will you need to retire? How much risk do you want to take?
Then there’s a need to employ impulse control. Don’t sell everything and go to cash, which is earning nearly nothing. Keep your eye on filling the bucket for retirement and not succumb to these easy temptations:
1) Avoid Loans You Can’t Pay Back! If you take out a 401(k) loan, you lose the tax-deferred compounding value of that money. It’s not working for you. If you change employers or lose your job — and don’t pay the money back — the IRS considers that a “default” and will nail you with taxes and penalties. This “leakage” is costing 401(k) participants more than $6 billion a year. Even with COVID-19 breaks to take out loans, do whatever you can to avoid them.
2) Keep investing. If you have auto-savings or auto-escalation (invest more when you get a raise), keep on doing it. I know it’s hard to do that, but you’re often buying more shares at a lower price. Buy low and hold!
3) Be careful with Rollovers. You may change jobs or retire. That gives you the option to “roll over” your 401(k) assets into another plan or Individual Retirement Account. If you’re going to do a roll over, find low-cost brokerage or mutual fund accounts. Don’t give a broker “discretionary” powers to trade at will. That’s a good way to lose your nest egg.
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