The last few months have seen a lot of change at the Jersey Shore. Everyday life had ground to a halt, and now is slowly re-opening itself one day at a time. From Cape May, to Belmar, all the way to Jersey City, every inch of our great state has felt the impact of COVID-19. Our companies and local businesses are no exception.
According to a recent survey by the Plan Sponsor Council of America, 16.1% of organizations across the country have suspended matching employer contributions due to COVID-19. On top of that, 1.3% of businesses have eliminated their 401(k) plans altogether. A large amount of New Jersey workers rely on their 401(k) and matching employer contributions as a bulk of their retirement savings.
If your employer has recently made an adjustment to its 401(k) offerings, you may be wondering if this will impact your ability to enjoy your retirement as planned here at the Jersey Shore. Here are a few things to consider:
Why Are Employers Changing Their 401(k) Plans?
COVID-19 has had a massive impact on businesses, not just here in New Jersey, but around the world. With most states implementing stay-at-home orders, businesses have been forced to reduce hours or cease operation altogether. Since us “New Jerseyans” were encouraged to stay home throughout March, April, May and now into June, foot traffic disappeared all across the state. It was certainly different walking an empty boardwalk in Asbury Park, or seeing the beach entrances in Spring Lake roped off this spring.
Even as New Jersey begins relaxing measures and stores start opening back up, our state and the country as a whole remain in a fairly volatile market. Businesses are struggling and searching for ways to cut spending and save money. One of the first things to go is often, unfortunately, employer-sponsored benefits such as 401(k) plans or their matching contributions.
What Should You Do if Your Matching Contributions Are Suspended?
In the case that your employer does suspend matching contributions, there are a few next steps you can take to help make sure your retirement here at the Jersey Shore is still on track!
Having an employer suspend matching contributions, even if it’s only temporary, is a sign of the times. People here in Monmouth County are worried, and have questions about their retirement plans. If you’re wondering if you’d be better off emptying out the 401(k) account and stashing the money under your bed, you’re likely not alone.
Decisions about your money should be made with objectivity – not gut reactions and emotions. Hastily taking any amount from your 401(k) now will only rob your future retirement. Unless you’re in serious need of immediate financial help, this option should be avoided.
In Ep. 300 of the Mullooly Asset Podcast, Brendan explained the phrase “stress-adjusted returns”. When an investor panics and takes all of their money out of the market, not only does it affect their real returns, but it also increases their stress levels. By not panicking, and not making emotional all-in/all-out decisions, you can avoid stressing yourself out wondering if you made the right move.
Revisit Your Investments & Financial Plan
If you haven’t already, use this as an opportunity to evaluate your current investment strategy and how it fits in your financial plan moving forward. This may be a good time to check if the initial goals you set are still your goals today. Do you still want that summer house in Manasquan? Is it still feasible to retire in a few years and work part time near the beach in Sea Girt? This is a great time to re-evaluate where you want to go.
Increase Your Own 401(k) Contributions
While your employer may have eliminated their contributions, that doesn’t mean you still can’t contribute to your 401(k). By revisiting your own financial plan, along with the help of your financial planner, you can determine if you can afford to send MORE into your 401(k) to make up for those lost matching contributions.
Remember, the contribution limit for a 401(k) increased in 2020 to $19,500. If you’re over 50, you’re allowed to contribute an additional $6,500 in catch-up contributions. Every penny counts when it comes to preparing for retirement.
Talk to Your Financial Advisor Today
Your financial advisor’s sole responsibility is to help you make unemotional, educated decisions about your money based on the financial plan you have put together. Use your advisor as a sounding board to voice your concerns and discuss potential paths forward. How can I make up for the missing contributions? Will I still be able to retire here in Monmouth County? Will I have to move out of New Jersey? You likely have plenty of questions regarding this change to your 401(k), and talking to your advisor is the perfect place to start.
If you don’t have a financial advisor, we would be happy to speak with you.
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