What to Do If Your 401(k) Has Lost Over 20% and You’re Planning to Retire


My 401(k) was doing ok for a while, but over the past year it has been losing money that I can no longer afford to lose. I want to retire in a year and my 401(k) has lost over 20% and was not that large to begin with. Every month I express my concerns to my adviser, but he says not to worry and that it will bounce back. I do not see that happening anytime soon. What should I do?


In general, a 20% loss for someone retiring in a year suggests the account may be invested too aggressively. This midterm election year is historically volatile due to uncertainty, and there are other contributing factors such as high inflation, rising interest rates, and geopolitical instability.

However, before looking for a new financial adviser, it is essential to have a serious conversation with your current adviser. The first step is revisiting a risk analysis and retirement income forecast to ensure that your investment portfolio aligns with your willingness to ride out the market’s ups and downs. Instead of solely hoping for a bounce-back, proper assessment and adjustments are crucial.

Ask your adviser for a risk assessment of your portfolio against your risk tolerance and make any necessary adjustments accordingly. By addressing these concerns with your current adviser, you can determine if a new adviser is needed.

As a certified financial planner, Ian Rea from Slate Peak Financial Services suggests that if you find yourself uncomfortable with the volatility in your investment portfolio, it is important to have an open conversation with your adviser. There are alternatives to simply selling everything and accepting permanent losses. Rea advises asking your adviser to adjust the portfolio to a more conservative approach, although this may involve realizing some losses at present.

While advisers may be correct in urging you to stay the course, it’s essential to remember that you haven’t actually incurred a 20% loss until you sell your investments. In the meantime, the decline in value is a normal occurrence, even for the most well-constructed investment portfolios. Elliot Dole, another certified financial planner at Buckingham Strategic Wealth, warns against fear-based selling, as it can lead to significant financial harm. While it may seem satisfying in the short term, selling in a panic leaves you sidelined during market recovery and facing the difficult decision of timing your re-entry at higher prices.

However, it is concerning if your adviser has not aligned your investment strategy with your risk tolerance. Determining your risk tolerance should have been a priority for your adviser before investing your funds. Additionally, your adviser should have provided market expectations and set realistic goals during both market upswings and downturns. Failing to do so can strain the client-adviser relationship and create unnecessary anxiety. Andrew Feldman of AJ Feldman Financial emphasizes the importance of a financial planner who understands your needs and risk tolerance. Consider using our tool to find an adviser who meets your requirements.

Note: This story was originally published in 2022. The questions have been edited for brevity and clarity.

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