- Stock markets are very volatile, but it’s not a reason to panic and stop saving for your retirement.
- Investors who stay invested in the markets and don’t sell during recessions are better off in the long term.
- It’s essential to have an emergency fund that will serve as a cushion if you lose your job or get sick.
Investors have been panic selling lately as the coronavirus is pushing the global economy into a recession. Markets are very volatile, and it’s hard to tell where they’re headed.
Financial advisers generally encourage you to reserve at least a small part of your income for your retirement savings, ideally 10% to 15%.
While it’s normal to be worried about the coronavirus, investors should keep making contributions to their 401(k) or another similar retirement plan.
Peter Palion, a certified financial planner in New York, thinks there’s no point in stopping contributions if you have enough cash:
If you’re still getting a paycheck, what’s the point of stopping contributions to get a little more cash? It’s not like your cost of living is going up – your mortgage and utilities, are, for the most part, still very close to amount you paid last month.
Plus, you may not have as much extra money as you would expect to when you stop making contributions, as you will get a higher tax bill. You also miss a matching contribution from your employer, which is basically free money.
You should put retirement planning on pause during the pandemic only if you need the money right now for your expenses or if you don’t have an emergency fund with three to six months’ worth of expenses.
An emergency fund will be handy if you get sick or lose your job. But you should consider contributing again as soon as possible.
Continuing To Save For Retirement Will Pay Off In the Long Term
What we learned from past recessions is that investors who stopped making regular contributions and sold stocks left them further behind than those who stayed the course.