What If Your 401(k) Doesn’t Recover Before Retirement?

Recent stock market fluctuations have had a negative impact on some people’s retirement accounts like 401(k) plans and IRAs. While anyone whose retirement is a ways off has time to recoup losses before they retire, if your retirement is imminent, what does this mean for you?

What steps can you take if your retirement account doesn’t recover to the balance you were hoping for by retirement? Experts offer some tips.

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Avoid Impulsive Moves

First and foremost, take a deep breath and remain calm while avoiding impulsive moves, recommended Myles J. McHale, senior vice president at Cannon Financial Institute. “Hasty decisions can usually do more harm than good.”

The next step would be to log into your account and assess the actual extent of the changes. He said it’s helpful to compare the current balance to what it was in the beginning of the year and at the end of the previous quarter to get a real picture of what you’ve lost.

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Get Honest With Yourself

After getting a grasp on the numbers, it’s time to have an honest reality check, McHale said. He recommended asking yourself, or discussing with a spouse/significant other, whether you are really retiring at the end of 2025 — or within the next 18-24 months — and assessing what changes you might need to make.

Consider Delaying Retirement

If the balance has dropped significantly, it’s worth considering delaying your retirement. While that may be disappointing if you’ve been counting on a retirement date, in doing so, even for just a year or two, “participants can significantly reduce the pressure on their 401(k) balance,” McHale said.

This means you wouldn’t need to start drawing from your 401(k) immediately, allowing the funds to accumulate and grow further.

He said that “leveraging time in this manner” can lead to substantial improvements in the retiree’s lifestyle and their overall retirement calculations.

Keep Expectations Realistic

However, Richard E. Craft, a fiduciary advisor and CEO of Wealth Advisory Group, cautioned that any “rebound” of a portfolio may not happen in just a few months or a few years. “An investment time horizon is the time over which you need the money.”

He agreed, however, that delaying retirement has several benefits. These include waiting to take the highest Social Security benefits, continuing to fund your company retirement plan and utilizing maximum “catch-up” contributions.

Rebalance Your Portfolio

A retirement account decrease is also a good time to take stock of how your portfolio is balanced and consider some changes, if necessary.

“It’s important to evaluate whether the 401(k) or similar plans were rebalanced to align with one’s risk levels or if it was assumed that these stocks would continue to outperform indefinitely,” McHale said.

It might be necessary to reduce exposure to high-risk investments like stocks and increase holdings in safer options such as bonds, Treasury securities or money market funds.

“This strategy can help protect against market volatility and provide peace of mind.”

Draw From Other Buckets

The ideal retirement plan involves having multiple income streams from which to draw, Craft said. Thus, if your 401(k) balance is low, you could possibly draw on an IRA, a taxable brokerage account and Social Security.

“Taking money out of investment buckets should be looked at like a percentage of assets, not a dollar amount,” he said. “If you have a shortfall, set the percentage of your assets you want to withdraw currently, like 4%, and then adjust your expenses around that number.”

If You Have a Bit More Time

If your portfolio has taken a hit but you have 10 to 15 years ahead of you before retirement, Craft urged, “Stay the course and make minor changes (like adjusting your asset allocation between stocks and bonds) but don’t sell out to cash.”

While a dip in your retirement account can be unsettling, it doesn’t have to derail your plans entirely. Whether you’re nearing retirement or still have time to rebuild, taking a thoughtful, strategic approach can help you protect your financial future.

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