What to do when your retirement saving account tanks

Employees looking at their 401K statements have likely been wringing their hands and rubbing their temples as stocks have been on a wild ride lately.

“Optimism has fallen as pessimism rises,” is the latest review from the AAII Sentiment Survey, a weekly look at individual investors and their thoughts on market direction in the next six months.

In the first half of 2022, investors indicated they expected stocks to fall further in the second half of the year. The survey recorded three of the most bearish readings, or expectations stocks will fall, on record since the survey started in 1987.

For the survey week of Aug. 24, 42.4% of investors felt bearish, meaning they believe stocks will be lower in the next six months. Bullish sentiment, or expectations stocks will rise, currently sits at 27.7%, marking it below average for the 40th consecutive week.

But Chief Investment Officer Nick Juhle wants to press pause on the doom and gloom. Juhle and his team at GreenLeaf Trust, with offices in Kalamazoo and across the state, push back on the notion people are living through one of the worst stock environments in the last 35 years.

That doesn’t mean Juhle isn’t concerned about inflation, interest rates and slowing growth. He’s just trying to talk his clients out of pulling everything out of the market and stuffing cash into their mattresses.

“The honest truth is that usually when things feel as bad as they can be, they just might be,” Juhle said. “A lot of times we find that when you see the whites of the eyes of those clients, it’s kind of right around when things start to turn in a different direction.”

Related: More interest rate hikes ahead; Fed warns of ‘pain for households’

During these tumultuous times, people are more likely to want cash on hand, and pulling back on retirement savings often feels like the quickest way to do so.

Fidelity Investments second quarter analysis found nearly one in five Americans say they have adjusted their retirement strategy and are taking a more conservative approach to their retirement savings.

Balances for IRA and 401(k)s have declined in the second quarter. However, declines were less than the last period of major market volatility at the very start of the pandemic.

Juhle said clients are calling with the same amount of fear they did in 2020. He reminds them, though, that if they had pulled out in March 2020 then they would have missed the gains made in 2021. His advice is to never try to time or game the market, especially when it comes to long-term savings plans.

“If you kind of just zoom out and say ‘let’s ignore what’s going on in this three to six month period of time,’ and remember that we’re navigating a plan that’s supposed to come to fruition over the next 30, 40, 50 years. Really what we’re talking about today is just noise,” he said.

Financial advisors are quick to remind clients to “stay the course,” which can be frustrating advice in a such an emotional climate.

To prove the point, Fidelity Investments examined savings approaches taken during the Global Financial Crisis in 2007. Each investor started with a $400,000 balance. This is where they stood five years later:

  • An investor who went to all cash and quit saving had $353,400.
  • An investor who moved to cash and continued to contribute to a savings account had $404,709.
  • An investor who stayed invested and continued to contribute to a savings account had $524,600.

Read more MLive inflation headlines here.

To Millennial and Gen Z workers, who are weathering a high inflation period for the first time, Juhle advises to start saving early.

First, that means setting up a savings account for emergencies. He suggests building up enough to cover six months of expenses.

Second, start contributing at least the employer match rate to a 401(k) or retirement plan. If possible, contribute more. Younger investors have the gift of time and can take advantage of compounding interest.

Third, Juhle suggests setting up a Health Savings Account that can roll over year-to-year and give a tax-free cushion for any unexpected medical expenses.

Lastly, if possible, seek financial guidance from a professional so they can tailor a plan based on income, debt and long-term goals.

Juhle knows it can be hard to put on blinders with so many headlines swirling about a pending recession. He said he can tell what news stories his clients have been reading based on what panicked questions they to him.

Too often clients’ financial advice is coming from their Facebook feed, Juhle said. It’s reminiscent of patients coming to doctors already convinced of a WebMD diagnosis. While questions are welcomed, doing the opposite of what professionals advise can be a costly lesson, Juhle said.

“If you’re smart enough to go out and engage that person, well, you pay for the advice, now take it,” he said.

This story is part of MLive’s Wallet Watch series focused on today’s economic issues. Have a Wallet Watch suggestion? Email us at askaquestion@mlive.com.

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