Four temptations to resist with your savings
This article contains general good practice information about retirement investments. DRS customers can only withdraw funds after separating from public employment.
Pulling your money out when the market is down
Seeing your investment values go down can be concerning. Selling stocks when they’re low guarantees your loss, while holding them allows for them to go back up in value again. Also, if you sell, it may be difficult to know just when to buy back in. If your timing’s off, you can easily miss the recovery. In a similar vein, you might be tempted to lower your DCP contributions when the market is down. Because you are purchasing shares with your contributions, your account balance will increase when the share price increases.
Not contributing consistently
Keeping up with your monthly retirement deductions is one of the easiest ways to save. Leaving your funds in long term allows them to grow over time. If you can increase your contributions when the market is down, you can take advantage of the gains when it recovers. For your DRS retirement account, this can mean staying in public employment as long as you can to increase your number of service credit years. For DCP, it can mean changing your dollar contributions to a percentage of your income so your contributions will increase as you receive salary adjustments or promotions.
Borrowing from your retirement account
Loans and borrowing are not available to DRS customers, but we understand you may have additional retirement accounts. Some customers withdraw their contributions after separation with the intent to pay them back if they return to service. This can be very costly due to interest over time. Even when times are tough, borrowing from your retirement savings should be your last resort. You’ll pay taxes off your withdrawal, and if you are under age 59 ½ you will likely pay a 10% penalty on top of that. That’s a loss of approximately a third of your borrowed amount.
Neglecting your investments
Are your investments still a good fit? Take time regularly to make sure you’re on track, that your investments are in line with your goals, and that your risk level is appropriate for your age. It’s also a good idea to see if there are any new investment options that would be a better fit.
Focusing on long-term investment basics is a solid strategy for reaching your overall retirement needs.