Prepare for the unexpected: How to keep your retirement savings on track
It's hard to plan for the unexpected, whether it's a lost job, a sudden illness, or an emergency home repair. But you can take steps to help safeguard your retirement savings, even when finances change.
Set aside at least 3 to 6 months’ worth of living expenses that you can tap into in an emergency.
Make the most of your spouse's resources.
Say you're laid off. Your retirement plan contributions stop along with your paychecks. If you're married and can afford it, your spouse might increase his or her retirement contributions or make Individual Retirement Account (IRA) contributions on your behalf. Once you land a new job, you may be able to devote an even larger share of your paycheck to retirement contributions and make up lost ground.
Avoid cashing out your retirement account.
Losing a job is probably the most severe financial setback you or your retirement savings will ever face. You lose a steady paycheck, and no longer have access to automatic salary deferrals and matching contributions from your organization.
But don’t panic and make a tough situation worse by cashing out your retirement accounts. It’s the worst thing you can do, says Michael J. Levine, investment advisor with the Levine Group, Inc., in Brentwood, TN.
"You're not only paying an early withdrawal penalty on that hardship withdrawal, but you're also missing out on the future growth," he explains. If you really need cash, look first to your emergency fund.
A dramatic change in your financial situation can be unsettling. Let a financial professional help you make a plan to keep your retirement goals on track.