US News & World Report: How to Protect Your 401(k) From the Coronavirus

As published in US News and World Report: Money

By Rachel Hartman, Contributor March 12, 2020, at 2:32 p.m

Evaluate your current 401(k) balance and think ahead to stay on track during market fluctuations.

FINANCIAL CONCERNS stemming from the coronavirus outbreak have rippled through the global economy. “The coronavirus has had an undeniable impact on the stock market, which extends to 401(k)s,” says Steve Sexton, financial consultant and CEO of Sexton Advisory Group, a financial services firm in San Diego. The uncertainty surrounding the disease has led to the selling off of equities, oil price wars and a stock market drop.

If you have a 401(k) plan, you may have noticed a decline in your balance recently. The exact decrease will depend on how your funds are invested. While allocations in stocks are likely to see larger drops, money invested in bonds may have less of a change in value. “For some portfolios, that can mean a 15% to 20% drop in value over the past two weeks,” says Katharine Earhart, partner at Fairlight Advisors in the San Francisco Bay area. “For those closer to retirement and in more conservative portfolios, the stock market drop may have less of an impact as the portfolios are allocated more towards fixed income.”

Follow these guidelines to make sure your 401(k) plan stays on track and is protected during this coronavirus-focused time:

• Steer away from panic.

• Evaluate your current setup.

• Take advantage of the long-term potential.

• Build a cash reserve.

• Consider delaying retirement.

Steer Away From Panic

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 currently be down, it may also increase as the market eventually recovers. “Reviewing your 401(k) plan account daily doesn’t help keep you calm and may create more panic,” Earhart says. “The market is volatile right now, and if you stay the course, you don’t need to look at it every day.”

If you continue to be concerned, avoid rash decisions based on fear, as they may lead to further losses. Early withdrawals from a 401(k), which refer to taking out money before age 59 1/2, will be treated as taxable income. You’ll also have to pay a 10% penalty on the amount withdrawn in most cases.