“I’ve always contributed to my 401(k), but I want to retire in 10 years and I’m so upset about the losses in this account over the last year that I’ve stopped contributing. Was that the right thing to do?”
This is a question I’ve heard from many investors who have seen their retirement account values shrink drastically in the past year. I’m sure you are worried that you are throwing good money after bad by continuing to add to your company retirement plan.
However there are several reasons why you should not stop contributing even if you don’t want to put money into the stock market. First of all if you don’t contribute you won’t get a tax deduction, which for most workers is anywhere from 15 percent to 33 percent of the contribution. In addition if your company matches contributions you are giving up some free money. So by all means please restart your contributions. Depending on how many pay periods you’ve missed you’ll need to increase the amount you contribute per period so that you reach the maximum of $16,500 ($22,000 for those age 50 or older) by year-end.
If you don’t want to put your contributions into equities, direct your money into a money market fund or stable value fund. Then when you feel more comfortable you can transfer this money into mutual funds that buy stocks.
Whether you are one year, ten years or twenty years from retirement you should continue to add to your retirement accounts. Tax deferral is a powerful contributor to wealth.
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