Should I make a change? That’s the No. 1 question 401(k) plan participants are asking Milliman Retirement Educators during the COVID-19 market downturn.
Other frequent questions we are hearing in participant one-on-one virtual consultations during the COVID-19 pandemic include:
- Should I move my account to the stable value fund until this COVID-19 pandemic is over?
- I’m 60―will I ever be able to recover from this market fall?
- I was going to retire at the end of this year. Now what should I do?
So how do Milliman Retirement Educators—and how can you as a plan sponsor—respond to these questions without giving advice?
Very carefully. Sometimes answering a question with a question prompts participants to come to their own conclusions. The question to any of these questions is, “Have your retirement goals changed?” The answer is typically, “No.” We find that most people have the same time horizon and the same savings goal. So what do you do?
How to respond
Here are three tips to use when responding to participants’ questions. Have them think through these factors and answer these questions:
- Review your time horizon. At what age do you plan to retire? When do you plan to start taking money from this plan? What should someone who is about to retire do? If you retire this year, or within the next five years, it doesn’t mean you’re going to take out all of your money at that time. For most, this money will be spent over the next 20 to 30 years in retirement. If you have 10 or more years until retirement, time is on your side. Over 10 years is considered long-term when it comes to investing. For many, staying put, staying calm, and not rushing to move money to cash can help recoup the loss when the market rebounds. Milliman produced a short video, Responding to Market Volatility, that may help restore confidence in the market.
- Review your asset allocation. Based on your time horizon and risk tolerance, are you invested appropriately? If invested in a target date fund based on your anticipated retirement date, then you can take comfort in knowing the professionals are managing your money and making adjustments as needed as you near retirement. If you are a “do-it-yourselfer,” and are concerned that you are not in the right asset mix, then take a risk tolerance quiz or use an asset allocation tool on your 401(k) participant website. Make adjustments based on your results, not on emotion.
- Think positive in a negative market. During a market decline, remember that if you continue to save and invest, you are buying investment shares at lower prices, which will put you in position for the greatest gains when the market rebounds. Milliman has a podcast, What To Do When. . . The Market Declines, that may help you navigate today’s complex financial decisions. Generally speaking, those who continue investing during market corrections are more likely to achieve long-term success.
Therefore, the basic answer to the question, “Should I make a change in my retirement account?” is, “Have your retirement goals changed?” If not, then experience tells us that you’ll be better off if you hold steady and wait for the market to rebound, or even consider saving more to take advantage of low investment share prices. For employees nearing retirement and seeking investment advice, several resources are available to help research and select a Certified Financial PlannerTM, including http://www.cfp.net/ and http://www.finra.org/.
Deciding what to do with your retirement account is an important financial decision. Milliman cannot offer financial, investment, or tax advice. You may want to consult with a personal financial advisor or tax advisor before making your decision.