• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

Prosper Blog

Personal Loans Home Equity Line of Credit (HELOC)
  • Blog Home
  • Financial Literacy
    • Credit Score Information
    • Establishing Credit
    • Financial Trends
    • Interest and APR Information
  • Credit Management
    • Budgeting
    • Debt Consolidation
    • Managing Debt
  • Financial Wellness
    • Best Practices
    • Financial Habits
    • Financial Lifestyle
    • Saving and Investments
  • Finance for Homeowners
    • Home Equity
  • Investor Center
    • Investor Updates
    • Performance Updates
    • Quarterly Investor Updates
    • Tax Guides
  • Prosper News
    • Company News
    • Press Releases
    • Product Announcements

Retirement Planning During an Uncertain Economy

August 21, 2020 by Sarah Cain

retirement planning, Prosper Blog

Living through an economic downturn is difficult enough without your retirement planning being tested as you watch the balance of your nest egg precariously rise and fall every business day. What exactly to do (or not do) in regards to retirement planning during an uncertain economy all depends on where you are in your timeline toward retirement, as well as your level of aversion to risk. 

Retirement Planning During an Uncertain Economy

To save or not to save, that is the question many people ask when the stock market is faltering and the economy struggling. It can be a bitter pill to swallow to put more money away in your 401(K), 403(b)(7) or IRA only to see those accounts continue to lose value on the screen daily or on paper when the quarterly statements arrive. Let’s take a look at four retirement planning options for when the economy has fallen on hard times, or when you’ve been furloughed from your job.

1. Stop Saving

What this means today: You stop contributing to your retirement savings plan.

What this means going forward: Your retirement savings plan does not grow with new money and no new shares of the investments are purchased. The balance continues to fluctuate with the market.

Your gut reaction to a recession or a period of economic uncertainty may be to stop contributing to your company’s retirement plan. That’s totally understandable. The urge to stop saving, when the prices of stocks and stock mutual fund investments may be depressed, however, is not generally considered sound retirement planning if you are still many years away from reaching retirement age. This is because, while an economic downturn can be a struggle week to week at home and in your bank account, you may end up missing an opportunity to invest in stocks and stock mutual funds at lower prices in your retirement savings account. If you are close to retiring and don’t have time to wait for the economy to recover or if you could just use some more money in your paycheck every two weeks, reducing your 401(k) contribution percentage — yet still maximizing any available employer match — is one choice during uncertain economic times.

2. Reallocating Your Current Investments

What this means today: You exchange the ‘riskier’ stock-based investments currently held in your retirement savings plan for more traditionally conservative options.

What this means going forward: Historically, the stock market in general has provided the greatest return on investment over the long term. By reallocating some/all of your retirement saving plan balance out of stock-based investments your account may underperform in relation to the overall economy in the future.

You may have heard the expression, ‘buy low, sell high’. That’s the easy, four word template for most retirement planning and general investment strategies. Reallocating your retirement plan investments by selling or exchanging out of stocks or stock mutual funds after they have fallen, or while they are still tumbling downward in value, however, could end up doing the exact opposite. Having potentially bought high in the past before selling lower in the present, a reallocation to bonds or ‘cash’ investments could turn paper losses into real ones. Unless you need the money immediately (or in the near future) or if your original retirement planning timetable has shifted since you started saving, selling during a downturn could have a negative impact on your retirement plan.

3. Keep Saving

What this means today: You make no changes to your retirement planning strategy or goals.

What this means going forward: While the state of the overall economy will change, continuing to ebb and flow during these uncertain times, your plan for how and when to retire remains consistent.

The simplest reaction to an uncertain economy is to change nothing about your retirement planning outlook. If you understand the risks, have decades until your actual retirement arrives, and can avoid logging in to look at your 401(k) balance too often, the Keep Saving method could pay dividends by the time you’re ready to enjoy your well-earned retirement. 

4. Save More

What this means today: You increase your 401(k) contribution percentage to put more money toward your long term retirement planning goals.

What this means going forward: Your retirement savings plan balance will still fluctuate with the market but you will be buying more shares of the investments in your plan, increasing the potential for long term growth if and when the economy rebounds.

Saving more in the middle of a recession or during periods of economic uncertainty is not for everyone. Maybe you simply can’t afford to stash more money away for 20 or 30 years from now, or maybe you just can’t stomach the roller coaster of investing during challenging times. There’s no shame in either. But, if you can, increasing your savings during a downturn in the economy may present the opportunity to buy investments at lower prices which, should they recover and continue to grow over time, could provide more long term gains in your retirement account. 

Next Steps

As difficult as it may be to look at your retirement savings account during an economic recession, it is even more difficult to predict what the future will look like. When it comes to retirement planning and investing during periods of uncertainty, it may be beneficial to maintain a long term approach and vision while employing a strict ‘living within your means’ strategy in the short term.


Read more: 4 Ways to Prepare for an Economic Recession

Share this post:

Share on Facebook Share on Twitter Share on Reddit Share on Pinterest Share on LinkedIn Share on Email

Financial Habits, Financial Wellness, Prosper Blog

Primary Sidebar

Connect with us

Facebook Twitter LinkedIn

For press releases and media inquiries: Prosper in the News or [email protected]

Categories

  • Blog Home
  • Financial Literacy
    • Credit Score Information
    • Establishing Credit
    • Financial Trends
    • Interest and APR Information
  • Credit Management
    • Budgeting
    • Debt Consolidation
    • Managing Debt
  • Financial Wellness
    • Best Practices
    • Financial Habits
    • Financial Lifestyle
    • Saving and Investments
  • Finance for Homeowners
    • Home Equity
  • Investor Center
    • Investor Updates
    • Performance Updates
    • Quarterly Investor Updates
    • Tax Guides
  • Prosper News
    • Company News
    • Press Releases
    • Product Announcements

Recent Posts

  • Prosper Performance Update – March 2021
  • What the Extended Tax Deadline Means for You
  • Paying for Childcare and Receiving Childcare Assistance — What to Know
  • How to Apply for a HELOC Online, Plus 5 Benefits of an Online HELOC
  • Saving vs. Investing: What’s the Difference?

Prosper LoansFollow

Prosper Loans
ProsperLoansProsper Loans@ProsperLoans·
4h

Are you attending @LendIt's #USA2021 next week? Our very own Haiyan Huang will sit on the panel that takes a deep dive into loan performance during the pandemic. Join this discussion on Tuesday, April 27. https://www.lendit.com/usa/2021/register/

Reply on Twitter 1384520997735370754Retweet on Twitter 1384520997735370754Like on Twitter 13845209977353707542Twitter 1384520997735370754
Load More...
  • Best Practices, Financial Wellness, Prosper Blog
    Medical Bill Debt: What Happens If You Don’t Pay Medical Bills?

    Even before COVID, expensive healthcare costs had many Americans wondering...

  • Finance for Homeowners, Home Equity, Prosper Blog
    Using a HELOC to Pay Off Your Mortgage

    Taking out a HELOC to pay off your mortgage is a common practice among many...

  • Credit Management, Managing Debt, Prosper Blog
    Emergency Loans With No Job: Options for the Unemployed

    While the unemployment rate in June showed a decline to 11.1%, that ra...

  • Financial Wellness, Prosper Blog, Saving and Investments
    Saving vs. Investing: What’s the Difference?

    Commonly confused, both as words and concepts, saving and investing are no...

  • Finance for Homeowners, Home Equity, Prosper Blog
    The Struggle to Access Home Equity: How to get a HELOC During COVID-19

    COVID-19 has drastically changed our lives in many ways — from jobs to...

Footer

  • Borrow
  • Invest
  • About Us
  • Press
  • Blog
  • Careers
  • Help Center
  • Contact Us
  • Legal
  • Prospectus
  • Financial Professionals
  • Developers

Prosper and WebBank take your privacy seriously. Please see Prosper's Privacy Policy and WebBank's Privacy Policy for more details. Prosper makes no representations as to the accuracy or completeness of any information provided on this Blog, which is intended for discussion purposes only. Opinions expressed in articles posted to this blog are the author’s own and may not reflect the opinions of Prosper. All personal loans made by WebBank, Member FDIC.

Prosper’s Notes are offered by Prospectus filed with the SEC. Notes are dependent for payment on unsecured loans made to individual borrowers. Notes are not guaranteed or FDIC insured, and investors may lose some or all of the principal invested. Prosper does not verify all information provided by borrowers in listings. Investors should review the Prospectus and carefully consider these and other risks and uncertainties before investing. None of the information provided on this Blog is intended to be investment advice.

Prosper Marketplace, Inc. NMLS#111473 (http://www.nmlsconsumeraccess.org)
All HELOCs are underwritten and issued by our banking partners. Refer to www.prosper.com/heloc for more information. Links to third party sites are provided for your convenience and do not constitute an endorsement.

Equal Housing Lender

© 2005-2021 Prosper Funding LLC. All rights reserved.

Copyright © 2021 · Genesis Sample on Genesis Framework · WordPress · Log in

Go to mobile version