I’m a Financial Planning Expert: These Are the 3 Worst Times To Check Your 401(k) Balance
Written by
Martin Dasko
Edited by
Joe Evans
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According to data from Vanguard, the average 401(k) balance for those 65 and older is $272,588. If you’re taking advantage of this employer-provided retirement savings plan, you’ll want to ensure you make the right choices while working to feel financially secure once you hit retirement age.
We’ll examine the worst times to check your 401(k) balance so you don’t derail your financial plans for your golden years.
What are the worst times to check your 401(k) balance?
When The Market Drops
“The worst time to check your 401(k) balance is after a large market correction,” said Justin Haywood, a CFP and co-founder of Haywood Wealth Management. “During these periods, the value of your investments is likely to be significantly lower due to the drop in the market.
You don’t want to check your balances during market fluctuations because you can convince yourself that you should take some action instead of waiting it out. When planning for retirement, you should expect market swings because portfolio growth won’t always be linear.
“This can lead to emotional reactions and potentially irrational decisions, such as moving your investments to cash or other assets out of fear,” Haywood added.
A common sentiment among experts is that you don’t want to lock in losses by making irrational decisions during market corrections. Remember that 401(k) accounts are for long-term investments with an extended time horizon. Reacting to short-term fluctuations can hurt your overall retirement planning strategy.
“You shouldn’t be jumping in and out to time the market,” warned R.J. Weiss, a certified financial planner and the founder of The Ways To Wealth. “I often advise that once you have the proper asset allocation, just open your quarterly statements. Ensure you’re on the right path, then return to work.”
After You Suffered a Significant Unplanned Expense
If you get hit with an unexpected expense, it can be tempting to want to tap into your 401(k) to help alleviate the financial pressure.
However, it’s worth pointing out that your retirement accounts shouldn’t be treated like an emergency fund that you dip into to cover your bills.
“You don’t want to rely on your 401(k) for emergencies. It’s best to hide it from yourself in this situation to avoid the temptation of early withdrawals,” Weiss added.
Checking your balance could tempt you to try to access the money, hurting your long-term financial plans.
Before Making a Large Purchase
If you’re planning to make an offer on a home or purchase a new vehicle, you could be motivated to use your retirement savings to help. The issue with doing this is that you’ll have to deal with penalties and could miss out on potential investment growth by using the money.
Weiss warned, “Don’t use your growing 401(k) balance to justify large purchases. Consider it separate from your month-to-month personal cash flow situation.”
Better Times to Check Your 401(k) Balance
If you’re wondering when the time would be right to check your balance, here are a few options:
When You Get Your Quarterly Statements
“Open them up, make sure your asset allocation looks good, and then don’t think much about your 401(k) for the next 90 days,” remarked Weiss.
Review your quarterly statements to confirm that the information is accurate and that you’re on the right track.
During a Market Rally
“The best times to check your 401(k) balance are during extended market
rallies,” shared Haywood. “Seeing your investments grow during these periods can provide a sense of satisfaction and reinforce positive behaviors such as periodic saving and continued contributions to your retirement plan.”
Looking over your balance during the good times will help you stay motivated with your retirement planning, and it could encourage you to stay focused.
When Your Life Changes Drastically
You should review your balance when your life changes, such as marriage or having children.
“Review your financial plan if you have kids, want to retire sooner, or experience significant life changes,” stated Weiss. “You’ll want to double-check beneficiaries and adjust your savings rate and asset allocation as needed.”
Before a Bonus
“If a big bonus hits, you can save a substantial portion of that bonus, up to the maximum, each year,” noted Weiss. “So, it’s good to review how much you contributed and adjust accordingly.”
Even though it makes sense to stick to a consistent percentage every paycheck, you could review your balance before a bonus to determine if it’s worth adding more money to your retirement savings.
How Often Should You Check Your 401(k) Balance?
The next logical question is how frequently you should check your balance.
“In general, it’s advisable to check your 401(k) balance periodically rather than frequently,” Haywood remarked. “Quarterly or semi-annual reviews can provide a good balance between staying informed and avoiding the emotional pitfalls of reacting to short-term market movements.”
During your balance review, it’s beneficial to reassess your investment allocations to ensure they align with your risk tolerance and timeline for leaving your job. As always, we recommend working with a trusted financial professional to create a retirement plan, helping you live comfortably in your golden years.
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