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It’s hard to prepare for retirement when account values are dropping and expected interest earnings are likely to be much less. However, things are not as bleak as they seem.

By Jim Mahaney, Vice President, Strategic Initiatives

April 24, 2020

Recent stock market volatility and a significant drop in interest rates are having a negative impact on 401(k)s. It’s hard to prepare for retirement when account values are dropping and expected interest earnings are likely to be much less.

However, things are not as bleak as they seem.

A couple of thoughts to consider:

  • Social Security: Your retirement wealth isn’t just your 401(k). It likely also includes Social Security. For many people, their Social Security wealth is greater than their 401(k) and IRA balances. Social Security provides lifetime income backed by a promise from the U.S. government. It also helps protect against inflation, a drop in interest rates, and, helps reduce the chances you’ll outlive your money. So the flexibility of Social Security combined with 401(k) or IRA assets can enhance retirement wealth. The Prudential white paper, Innovative Strategies to Help Maximize Social Security Benefits, provides ideas on how to optimize your Social Security’s value by integrating it with a 401(k) or IRA.
  • Buying low: The drop in the value of stocks may actually benefit you in the long run. For example, if you are working and contributing to your 401(k) over the next 10 years and stock prices are lower, your ongoing 401(k) contributions will buy more shares. Should the market recover by the time you retire, you could end up with more 401(k) wealth than if the bear market of 2020 never occurred.
  • Convert some pre-tax savings dollars to Roth: If you have the resources to convert some of your IRA or 401(k) to a Roth IRA, you can benefit from lower account values by paying less in taxes, realizing significant savings over the long run.
  • Refinance your home: Take advantage of the lower interest rates to refinance your home and consider shortening the term to 15 years. You could save thousands in interest over the life of the loan and be much better prepared for retirement if you have no mortgage debt.
  • Pay off debt. Speaking of debt, one of the best “investments” you can make is paying down your debt. After all, it’s a sure thing. During this time, many of us are spending less money as we’re going out less. Consider putting that savings toward paying off credit cards and loans. While you can’t predict with certainty what your return might be on most investments, you know you’ll be “earning” 15% when you pay down a credit card that charges 15% interest, or 4% when paying down a 4% car loan.
  • Plan to use some of your assets to buy an annuity at retirement. If you like the idea of having Social Security coming in every month for the rest of your life, consider buying an annuity. Annuities are protected against market volatility and are a way to secure even more guaranteed lifetime income.

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This material is being provided for informational or educational purposes only and does not consider the investment objectives or financial situation of any client or prospective clients. The information is not intended as investment advice and is not a recommendation about managing or investing your retirement savings. If you would like information about your particular investment needs, please contact a financial professional.


Prudential Financial, its affiliates, and their financial professionals do not render tax or legal advice. Please consult with your tax and legal advisors regarding your personal circumstances.