The COVID-19 pandemic has given rise to two critical pieces of advice: Wash your hands for at least 20 seconds. And don’t touch your face.
Here’s a third: Keep contributing to your 401(k).
It’s natural to feel nervous, even panicked, watching your 401(k) balance drop. Fear that there might be further declines could tempt you to stop putting money into your retirement plan at work.
But that’s exactly the opposite of what you should do. Continuing to save is the best thing you can do to help your retirement plan right now.
In fact, if you’re financially able, now is actually a good time to consider contributing more to your 401(k). You can’t control the market’s performance, but you can control how much you save.
It’s odd when you think about it: By staying at home, your expenses are likely a lot lower than usual. You can send that freed-up cash into your 401(k)!
Better yet, with stock prices down, a huge sale is taking place on Wall Street! This means you have a unique opportunity to buy quality investments at lower prices.
Think about it this way: If the price of your favorite ice cream dropped 50 percent, you’d load up. So if the shares of the funds in your 401(k) are lower, do the same — buy as much as you can!
As we learned from the 2008 credit crisis, major downturns can be expected to enjoy a strong recovery. There’s no guarantee of that, of course, but the S&P 500 gained more than 450 percent in the last 12 years, after the ’08 crisis ended. Investors who stopped contributing to their 401(k) in 2008 missed out!
Don’t let that happen to you.
If that’s not enough motivation, consider these additional benefits your 401(k) has to offer:
- Tax deduction: Your contributions are made on a pretax basis. That lowers your taxes!
- Tax-deferred growth: The earnings on your investments grow tax-free; you don’t pay any taxes until you make withdrawals in retirement. This lets your money grow faster than if you had to pay taxes on that growth annually.
- Matching contributions: Many companies match some of your 401(k) contributions. It’s literally free money!
- High contribution limits: In 2020, you can contribute up to $19,500 to your 401(k).
- Catch-up contributions: If you’re 50 or older, you can contribute an additional $6,500 to your account this year.
We hope you’ll take advantage of these unique benefits and keep contributing to your future retirement savings!