Navigating retirement savings during volatile markets

Navigating retirement savings during volatile markets

Concerned about market volatility and what it means for your retirement savings?

You’re not alone. Here’s a message from our President, Rob Kapito, on how we can navigate these challenging times together.

Millions of Americans are facing immediate financial distress and need cash today. But, for individuals and families who are financially able to stay invested, history shows that people do best when they take a long-term view.

Rob Kapito
President of BlackRock

Get Rob’s take on the unique financial implications of the COVID-19 crisis – and a few things to keep in mind as you make financial decisions in this time of crisis.

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Some things to consider

Market volatility can startle even the most experienced investors. But whether your retirement is decades away, just around the corner, or where you are today, it’s important to keep the following in mind when making decisions on whether to remain invested.

1. New contributions may grow as markets start to recover:

Investors who can continue contributing to their retirement have the potential to take advantage of market recoveries. For example, those who stayed in their plan from 2007 through 2013 saw their average account balances increase by 86%1.

New contributions may grow as markets start to recover

For illustrative purposes only. Past performance does not guarantee future results.

New contributions have the potential to take advantage of attractive market prices that can pay off the next time the market starts to recover.


2. How about "Considerations for your investment allocation"

Historically, markets rebounds are concentrated in a few, distinct spurts. And while we expect the market will rebound again, we don’t know when those spurts will happen.

Considerations for your investment allocation

Performance is hypothetical for the period from 3/2/2000 to 2/28/2020 and for illustrative purposes only. Past performance does not guarantee future results.

Consider the above chart, which shows the hypothetical return of $100K invested in the S&P 500 Index from March 2000 to February 2020 (yellow bar). To the right, you can see the impact of having missed top-performing days. As you can see, staying invested earned more than double that of the portfolio which missed the top 10 performing days.


3. Long-term view versus short-term disruptions:

From a historical perspective, stock market downturns are often followed by a period of positive market performance.

Long-term view versus short-term disruptions

Source: Morningstar as of 2/28/20. Returns are principal only not including dividends. U.S. stocks represented by the S&P 500 Index. Past performance does not guarantee or indicate future results. Index performance is for illustrative purposes only. You can’t invest directly in an index.

As the above table illustrates, since 1987, every major decline in U.S. equities has reversed itself between 21% and 68% within the following year.


4. Some things to consider before withdrawing money

We recognize that those who are experiencing significant and immediate financial distress may need to turn to their retirement plan for relief.

With that in mind, the recently-passed CARES Act, a bipartisan COVID-19 stimulus package, waives the 10% early withdrawal penalty up to $100K and provides increased flexibility paying back distributions.

For those thinking about taking this course of action, here are some things to think through in advance:

  • Take a look at your plan's rules
    Make sure you are aware of your plan’s rules regarding loans and hardship withdrawals. If they are permitted, consider the applicable terms such as maximum amounts, eligibility criteria, and repayment terms and timing.
  • Explore other sources of emergency funds
    Consider whether it would be less costly to take a personal or equity loan, or a loan from a family member, rather than draw on your retirement savings.
  • Consider potential financial implications
    It's important to consider all the possible implications of taking a loan or withdrawal from your retirement plan. For instance, borrowing after a severe market decline may “lock in” losses, if you are not invested during a market rebound. In effect, you may be selling low and buying high.
  • Remember: Unrepaid loans may be treated like income.
    If you leave your job with an unpaid loan from your retirement plan, it may be treated – and taxed – as income, potentially adding another cost. In addition, early withdrawal penalties may apply to unpaid loan balances if you are under 59 ½.
  • Seek out advice
    If you need help making a decision, you may want to consider speaking to a tax advisor, consulting with your plan sponsor or reviewing guidance from the Internal Revenue Service.

Investing tips to manage through market volatility

Pointers on actions you may want to avoid and actions you should consider taking when the markets become volatile.

Want to know more?

Saving for retirement is about investing for the long-haul. Here are some additional resources designed to help you reach your goals. Because, while you can’t control the markets, you can control your actions.
Debunking 3 investor myths on volatility
Debunking 3 investor myths on volatility
Learn how to avoid some common pitfalls when it comes to saving for retirement in a volatile market.
Surviving the market’s ups and downs
Surviving the market’s ups and downs
Here are four things to keep in mind to help you manage your money for the long-term.
When the going gets tough, remember the long game
When the going gets tough, remember the long game
Take a look at these key reminders if you find yourself getting overwhelmed during these turbulent times.

For more information, visit our resource guide on planning for retirement risks.