The Dow Jones Industrial Average plunged a historic 777 points Monday. Is now a good time to ask how your 401(k) is doing?
“Certainly, there’s a sense of panic out there,” said Tiffany Lundquist, spokeswoman for AARP Maryland.
That panic only worsened on Wall Street Monday after the House voted against a $700 billion bailout of the nation’s financial system. As the Dow sinks lower and lower, workers are increasingly worried about their retirement savings and what all of this means for their financial future.
“As the economy slows, we’re hearing people are having a hard time paying for food, gas and medicine,” Lundquist said. “As a result, some are raiding 401(k)s or curtailing contributions to pension plans.”
In fact, about 25 percent people over 45 said they have prematurely withdrawn funds from their 401(k), individual retirement account or other investment plan, according to a recent AARP survey. Another 33 percent have stopped putting money into such accounts.
That, though, is the worst thing to do, even during the most dire financial times, Lundquist said.
“In the big picture, that’s going to lead to a critical situation,” Lundquist said. “We encourage people to consider these withdrawals as a last resort, because that money can no longer yield interest or grow, and you have less working years to make up the difference.”
Scott Ford, president and founder of Cornerstone Wealth Management Group, said the phones have been ringing more than usual.
“Two clients called and said they were fearing a depression, not a recession,” Ford said. “One client actually said, ‘This is freaking me out.’”
Ford said, during trying financial times, investors have to stay the course and not overreact during a “bear” market.
“Your fears and your emotions can be your biggest enemy,” Ford said. “You really have to manage your downside expectations.”
While 401(k) might look beaten and battered today, they’ll eventually recover, Ford said.
“It might take five, 10, 15, 20 years,” Ford said. “This is actually a great buying opportunity, and a good time to pick up some good bargains.”
