A sharp stock market drop 401(k) impact hit Thursday as the Dow Jones Industrial Average plunged 1,833 points, leaving retirement savers facing lower balances on paper. The Nasdaq Composite and S&P 500 also fell sharply, deepening the pressure on Americans whose accounts hold a large share of stocks.
Jay Duffy of Frame Wealth said the greater concern is for investors close to retirement. He singled out “the 62-year-olds who are three years away from retirement” and said those portfolios were built for someone with another 20 years to recover.
Dow Jones Industrial Average on Thursday
On Thursday, the Dow Jones Industrial Average fell 3.44%, the Nasdaq Composite sank 5.52%, and the S&P 500 dropped 4.36%. The Nasdaq Composite entered correction territory, while technology and semiconductor stocks took the heaviest losses.
The sell-off also followed worries about potential new artificial intelligence regulations after Democrats' midterm election victories. For retirement savers, the immediate issue is not the index move itself but how much of a 401(k) is tied to equities and whether the money will be needed soon.
Mark J. White on retirement savings
Mark J. White of Mark White Wealth Advisors warned against sudden changes to retirement investments in response to market volatility. “Market declines can be unsettling, particularly for Americans approaching retirement, but the biggest risk is often not the decline itself. It’s making an emotional decision in response to it,” he said to Business.
He said younger Americans can benefit from continuing regular 401(k) contributions during a downturn, because those purchases happen at lower prices. That approach can help workers still building balances, while those near retirement need to be more careful about where short-term withdrawals come from.
Frame Wealth and near-term withdrawals
Duffy said retirees who must sell investments during a downturn to cover living expenses face sequence-of-returns risk. White advised Americans approaching retirement to keep enough cash and conservative investments available for near-term withdrawals, so they do not have to sell stocks after a sharp decline.
“Your retirement date shouldn’t dictate whether you panic. It should dictate how you’ve prepared. A well-constructed retirement portfolio should anticipate market declines, not require a complete overhaul every time they occur,” he said to Business. For readers with heavily stock-weighted 401(k) accounts, the practical step is to avoid reacting on emotion and to match near-term spending needs with safer holdings before the next downturn arrives.
