If you have a 401K plan, watching it ebb and flow over the last few months has been a bit of a roller coaster ride. It’s currently looking a little better, thanks to the stock market recovering, but as anyone that doesn’t make a living in finance knows (or at least experiences), the stock market is not the real economy.
At the very least, there are two economies and they aren’t always linked. Looking forward, Pete the Planner says “part of the economy is gonna do amazing, and part of the economy is going to do poorly.” It’s what Pete refers to as a “k’ shaped recovery in graphical terms.
“The market is doing fine, the economy is sadly still in shambles” he says.
While Pete doesn’t like the term “the rich get richer as the poor get poorer”, he admits it’s apropos for the current situation.
Coming back to 401K plans, current laws do favor those that are more stable and have the ability to contribute more to them (or have one at all).
Depending on the 2020 election, that could change. Vice President Joe Biden has plans to change 401k laws to offer middle-income earners more advantages with the plans.
For now, if you’re fortunate enough to have a 401k, Pete has some important strategies.
First, focus on building an emergency fund if possible to avoid ever having to borrow from a 401k plan. Second, consider readjusting your plan’s investments based on your comfort level and the current situation.
And lastly, only withdraw from your 401K plan early as a last resort.
For more information, visit petetheplanner.com