Contributing to Your Retirement Savings in a Down Market

Over the past few years, the nation has seen some drastic changes in the economy. With record-high inflation rates, supply chain issues, and increased prices for goods and services, budgets everywhere have been strained.

While the state of the economy may feel overwhelming, it’s important to work in a productive, effective way to make your money work for you regardless of the circumstances. While contributing to your retirement savings accounts may seem like a perk for those with discretionary income, making regular contributions helps you build a solid nest egg for the future, despite today’s fluctuating market conditions.

In 2022, the nation experienced a phenomenon called a down market. According to Investopedia, a down market occurs after a market high, causing a steep decline in the value of investments, typically around 20%. While it may not sound like a good time to keep investing, there are strategies you can use to tackle the downturn and keep your investments and savings on track.

Keep reading to learn how inflation and recessions impact retirement accounts and how to navigate a down market.

Inflation vs. Recession

As the purchasing power of money decreases, and the price of producing goods and services increases, the world experiences inflation. While it can affect every day financials, retirement accounts are safer from inflation than other riskier investments, such as real estate property. This happens because business revenues and profits typically grow during an inflationary period and the market stabilizes over time. Learn more about inflation and the market.

Often, as inflation rises, the threat of a recession increases. Recessions occur when there is an economic decrease due to low consumer spending and higher costs of production, creating an economic downturn.

During these crucial times, it’s important to meet with a financial advisor to diversify investments to reduce the impact on your accounts. An advisor will help you mix your investments to include both low and high-risk strategies which will curb the effects of the economic turns, all while maintaining a healthy, consistent account throughout the recession. Learn about preparing your savings for a recession.

Strategies for Making Contributions Affordable in a Down Market

With a rise in the price of goods and services, your budgets may need to be adjusted, but that should still include retirement savings contributions. There are some strategies you can utilize to ensure that your savings don’t take a fall, and that you are still on track to retire.

  • Review your budget and use the 50/30/20 budget rule to determine how your income should be divided
  • Use financial apps to monitor spending, investments, budget allocations, bills, and more
  • Use salary increases or annual bonuses for additional retirement savings
  • Diversify investments to reduce risk
  • Turn your passion into a profit and use the income for additional retirement savings
  • Use financial calculators to determine how contribution changes affect your paycheck and retirement saving

Downturns in the market can have an impact on finances, but with the right strategy and budget allocations, you can manage your money in a way that benefits you today, tomorrow, and in the future. If you’re not sure how to get started, request a consultation with a financial advisor who can help assess your goals, current savings, and income and work with you to build a plan that benefits you.

For more financial advice, visit the Slavic401k blog.

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