ďIíve always contributed to my 401(k), but I want to retire in 10 years and Iím so upset about the losses in this account over the last year that Iíve stopped contributing. Was that the right thing to do?Ē
This is a question Iíve heard from many investors who have seen their retirement account values shrink drastically in the past year. Iím 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 donít want to put money into the stock market. First of all if you donít contribute you wonít 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 youíve missed youíll 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 donít 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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