What’s Happening with 401(k)s and Investments?
The economic shutdowns brought about by the pandemic have had a ripple effect on 401(k)s and other investments.
- Some employers are ending employer matching. Employer match programs make 401(k) plans attractive to many employees, but some employers have paused matches amid the current economic problems. According to MarketWatch, at least 16 large companies had suspended employer match programs as of April 21.
- Accounts are being raided. A provision in the CARES Act made is easier for people who have been economically impacted by the coronavirus to make early withdrawals of up to $100,000 from eligible retirement plans, including 401(k)s, 403(k)s and IRAs. According to the IRS, the 10 percent additional tax on early distributions does not apply to these withdrawals. Some people have taken advantage of this to raid their retirement accounts.
Should You Invest Now? The Pros and Cons
Another impact of the pandemic has been stock market volatility. This has prompted many people to question whether this is a very bad time – or perhaps a very good time – to invest.
- As always, the situation isn’t straightforward. No one can know for certain how stocks will perform in the future, and how or whether you decide to invest will depend on your own appetite for risk.
Here are some of the reasons some people may not want to invest now:
- We are in a recession. After a great deal of speculation that the pandemic would cause a recession, the National Bureau of Economic Research has announced that we are officially in a recession. According to CNBC, this marks the end of the longest economic expansion in U.S. history.
- The pandemic may be far from over. Despite hopes that a vaccine will end the current crisis, some experts say that coronavirus might be an issue for a long time. According to Bloomberg, a report from the Center for Infectious Disease Research and Policy warns that the pandemic may last for two years. The economic impact may be long-lasting, too.
And here are some of the reasons you may want to consider investing now:
- Some stocks may perform well. Even during a down market, some individual stocks may perform very well. Investment strategies that focus on “boring” stocks may succeed even in difficult times – although, as always, there are no guarantees.
- Prices may be low. Some stocks that took a hit because of the pandemic may now be available at an attractively low price. If you think the stock will rebound, this may be a good time to purchase.
If you have concerns about your retirement planning strategy, we’re here to help. Contact Heffernan Financial Services to learn more.