How to recover from a retirement savings setback

Here are 5 ways to help get your savings and investing back on track.

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Key takeaways

  • Some people have turned to their retirement savings as a source of emergency money to help them financially get through the pandemic.
  • If you've taken money out of a workplace savings plan to get through the recent tough times, the CARES Act allows you to pay federal taxes over 3 years rather than paying them all in the year you took the withdrawal.
  • One guideline for getting your savings back on track is to try to contribute at least enough to get any available company match. This is like free money into your 401(k).

If you've been impacted financially by the pandemic, you're not alone. Many have experienced job loss, pay cuts, furloughs, and stock market uncertainty. During these times, some people have turned to their retirement savings as a source of emergency money.

The good news is there are ways to get back on track when you're ready. And Fidelity can help. Let's all take a deep breath, and learn how these 5 ways can help you recover from a retirement savings setback.

1. Revisit your retirement contributions and investment allocation

In situations where income and expenses suddenly seem out of whack, many people freeze or cut back on contributions to their retirement accounts. When things get back to normal, one of the simplest actions you can take—restarting your contributions—can make a big impact. Remember, even 1% can make a difference over time.

One guideline to keep in mind is to try to contribute at least enough to get any available company match. This is like free money into your 401(k). In some cases, employers have temporarily halted the employer match. Hopefully, this is not long lasting, so if you can, keep contributing to your workplace retirement plan.

A lot of people like the fact that 401(k)s are "automatic savings" programs—set it and forget it. Money goes directly into their workplace savings accounts every paycheck. And if by any chance you can increase your contributions, or if you're in a position to try to contribute more to "make up" for stopped contributions, even better. But, just starting to contribute again, at any amount that is reasonable given your budget, is a great start.

As can be expected, some people reacted strongly when the market dropped by 11% on a single day in March 2020. Some pulled all their money out of the market, sold off stocks at low prices, or even changed their investment lineup completely.

For many who did nothing, the markets (and their 401(k) account balances) have generally bounced back. For others, it may be advisable to seek help to get back into the market with the proper risk and asset allocation guardrails in place.

Tip: To start, try to gradually ramp up your contributions until you hit 15% of your income (this includes any employer contribution), a level that should set you on a course to help maintain your lifestyle in retirement. If your circumstances, goals, time horizon or tolerance for market risk have changed, consider working with a Fidelity advisor to help rebalance your portfolio if needed.

2. Did you take a withdrawal from your 401(k)?

No one could have imagined what 2020 would bring, and thousands of people have had to make very tough financial decisions, like withdrawing money from their workplace savings plans, such as a 401(k) or 403(b), to take care of an immediate financial need or simply get by month to month.

If you've taken money out of a workplace savings plan to get through the recent tough times, here are a few tips:

  • If you cannot repay the withdrawal, consider contributing more each year to your retirement plan in order to help offset the money you took out.
  • The CARES Act allows you to pay federal taxes over 3 years rather than paying them all in the year you took the withdrawal. Now's a good time to look at your tax situation and decide what is the best way to pay the taxes—spread them across 3 years or all in one year. We suggest that you work with a tax professional during this time, even if you have not in the past.
  • For more information, Read Viewpoints on Fidelity.com: 9 things to know about the COVID-19 stimulus bills

3. Did you take a 401(k) loan? Here's how to move forward.

In these difficult days, you may have tapped into your 401(k) for a loan to cover expenses. Here's what to know about repaying a 401(k) loan:

  • You'll have to pay that borrowed money back, plus interest, within 5 years of taking your loan, in most cases.
  • If you took a CARES loan, you can defer repayments on your loan until January 1, 2021.
  • The best course of action is to pay it off on time and in full.
  • If possible, avoid borrowing more than you need or too many times.
  • Continue saving and contributing to your retirement. It will likely be your biggest source of income when you retire.
  • Remember, in the event that you leave your employer, any outstanding loans need to be repaid in full within a short period of time or you will have to pay the taxes on the outstanding balance, which would be treated as a distribution, not a loan from your account.

Let's look at an example of 3 people who took loans— but had very different outcomes. In the hypothetical example below, 3 people take a $20,000 loan against their 401(k). All were contributing 10% of their $75,000 salary, prior to the loan.

  • Ricardo repays the loan on time and keeps saving for retirement.
  • Genevie repays the loan on time, but cuts her contribution to her workplace retirement plan in half (from 10% to 5% of pay) for 2 years, until she is done repaying the loan.
  • John stops saving altogether and 3 years later, takes a second loan of $20,000. After 8 years, he pays off both loans but he does not resume his contributions of 10% of salary to his 401(k) for a period of 10 years.

Bottom line: At their retirement age of 67, John has about 30% less saved for retirement than Ricardo.

4. Balance saving for retirement with other goals—like building up an emergency savings

Everyone knows the importance of saving, but a common struggle for many people is organizing different "buckets" of savings for different goals—things like retirement, emergency savings, and education—not to mention more enjoyable items like vacations.

Recent events have highlighted how hard it can be for some folks to build up a rainy day fund in addition to saving for retirement. Even if you've already tapped your emergency savings, don't let go of a goal for something you really need or want to save for over the next 1–5 years.

Tip: Use mental accounting: This approach involves saving separately for different goals and labeling each pot of money—ideally, with a photo—in a personally meaningful way. For example, name a new goal "save for George's college fund" or "save for my dream beach home in retirement."

Fidelity wants to help you save for the things that matter to you so we developed the Fidelity Goal Booster. It's designed to keep you on track to reach your savings goal by making saving more automatic. For example, if your goal was to establish an emergency savings fund of $6,000 in 3 years, using Fidelity's Goal Booster, you should plan to save $167/month or $39/week to reach your goal.*

5. Evaluate where you are today—and where you want to go

The pandemic may have sidelined your retirement savings efforts, but you have time to recover. Now's likely a good time to pause and think about your long-term plan for saving for retirement. Over the years, we've developed key retirement rules of thumb designed to help people who ask these common 4 questions:

  1. What will my savings cover in retirement?
  2. How much do I need to save for retirement?
  3. How much should I save each year for retirement?
  4. How can I make my retirement savings last?

Learn more about our 4 key retirement metrics—a yearly savings rate, savings milestones, an income replacement rate, and a potentially sustainable withdrawal rate—and how they work together in the Viewpoints Special Report: Retirement roadmap.

The events of 2020 have changed how we think about many different things in our lives, families, and communities, including how we earn, save, and spend our money. Given the ongoing uncertainty, it's now more important than ever to take charge of your financial life. Whatever path you choose, we're here to help you take the steps—small, medium, or large—to help get your retirement savings and financial life back on track.

Next steps to consider



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Even a 1% increase in your workplace savings account amount can make a big impact over time.



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