Government Crisis and Your Money

Government shut down in America

How the U.S. Government Shut Down Impacts Your 401(k) 
by Minya K. Irby | Living Well | Wednesday, October 16, 2013 

Your 401(k) represents your long-term investment in the stock market, so the government shutdown in the U.S. has a trickle-down effect, right down to your 401(k). In reference to the last government shutdown in the nineties- historically- after a government shutdown, the following 12 months has presented a double-digit market gain. However, the nineties provided us with many boosts in the economy, acquiring market gains we haven’t experienced since.  

Contrary to the nineties, what we are currently seeing in the market today, two weeks since the shutdown, is a decline in the market. Experiencing declines in the market creates losses in your 401(k); which in turn means a loss in your hard earned money. Many Americans are just now seeing a return in their 401(k) plans after the market loss of 2008. In plainer terms, it has taken most Americans five years to return their 401(k) balance to where it was prior to the crash of 2008. While investing in a 401(k) is the easiest way to prepare for retirement, in this volatile economy it may not be the most “fiscally sound” way to prepare for retirement.  

"A 401(k) that has experienced multiple market losses will require more time to recover those losses..." 

Of course another factor that can affect your 401(k) is the pending debt ceiling. Although it may be unlikely that the federal government will default on their debt, in the event it happens for the first time in American history, Americans will experience a loss in the value of a dollar, meaning a rise in inflation. Think about this, if in today’s economy a dollar can purchase only about ninety-four cents worth of goods, a rise in inflation will reduce our purchasing power. A 401(k) that has experienced multiple market losses will require more time to recover those losses, and with a rise in inflation, it will acquire less in the future.  

As a result, it’s necessary to examine your current 401(k) balance. Review how much you have lost in comparison to how much you have gained, and assess how much you will need to achieve your current standard of living in the future. Will you have to work for more years, and if so how many? Will you have to cut back on current expenses, and if so by how much, and can you afford to cut back anymore? These are things we need to pay attention to during this government shutdown, and things we need to be thinking about as this shutdown prolongs.  

Image credit: Jim Larkin

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