Less Is Less. And Other 401(k) Tips to Avoid

Whether the market is down or up, whether your finances are in fine shape or not so fabulous, you know you’re supposed to make those 401(k) plan contributions.

Do not stop.

But one high-profile investor is doing exactly that. Jim Cramer, CNBC’s outspoken investing maven, says sticking that contribution money into high-yield savings is a better idea right now.

It may be tempting to stop stocking an account that seems to be losing money, so Morningstar Research took a close look at what happens when people hit the pause button on their retirement savings.

Early 2020 saw a sharp, sudden market downturn — and a rapid rebound just a month or so later. An investor who kept buying stocks during the down market would have ended up slightly ahead by the end of October 2022, according to Morningstar’s portfolio strategist Amy Arnott.

Previous downturns in the early 2000s and the 2008 recession showed even more dramatic differences, Arnott found. In each case, she assumed two scenarios: An investor who started socking away $500 per month in stocks, and another investor who stopped investing until the market started to improve.

An investor who began in January 2000 and stayed the course throughout the turmoil would have ended up $359,000 richer 20 years later. The wait-and-see investor would have finished with about $306,000.

Now let’s look at 2008. An investor who started saving $500 a month in January and kept on making consistent monthly contributions would have ended up with about $226,000 by last November — even after the heavy losses in 2022. An investor who skipped contributions until January 2009 would have ended up with about $207,000.

Past performance is no guarantee of future success — but history seems to be. For more on how inflation and fears of a recession make workers think they should contribute less to retirement savings, check out Money reporter Pete Grieve’s story.

— Jill Cornfield, deputy editor

That’s America’s retirement score, according to Fidelity — the target income they’ll need to cover expenses in retirement — and it’s down from two years ago. In 2020, the score hit an all-time high of 83%. Now Fidelity estimates American savers can meet just 78% of their retirement costs. The reason? People are saving less and investing more conservatively.

• 11 ways to save on travel when you’re retired. (Tip No, 4 will save you admission fees on hundreds of museums.)
• Saving to help support parents and kids? Gen X says they’ll pass.
• Boston College found that some with higher incomes should be more worried than they are about retirement readiness.

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