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Americans have lost more than $1 trillion in 401(k) savings this year

Yahoo Finance columnist Kerry Hannon reports on how Americans' retirement accounts are dwindling like never before thanks to market volatility and inflation.

Video Transcript

RACHELLE AKUFFO: All three major indices have taken double digit losses so far in 2022, and they've taken our 401(k)s with them, wiping out $3 trillion in retirement savings. Yahoo Finance's Kerry Hannon is here to tell us how we can recession-proof our retirement. So Kerry, what tips would you give someone who's worried about their retirement account right now?

KERRY HANNON: Absolutely. There's no time like the present to start thinking about these things. And frankly, this is good advice for any time with your 401(k). But let's start with just a couple of basics, right?

Number one, take a look at what you have saved outside of your retirement account, because what happens is, if you have an emergency and you need that money, you do not want to be tapping into your retirement account right now, because you may pay a penalty. But in addition, if the market's down, this is not the time to be taking from these accounts. So make sure you have outside savings that can be that go-to source if you have an emergency.

Number two, look at your asset allocation. This is a great time to take a look at how do you feel about owning equities. Does it make you queasy? Do you have too much in the stock market? Now, keep in mind, if you haven't sold anything yet, if you haven't tapped into your retirement account, you haven't lost anything yet this year, right? So the fact of the matter is, you can ride this out. And if you have time before you need to tap into these accounts, more than 10 years or so, you have plenty of time for everything to rebound.

But again, take a look at how do you divide it between stocks and bonds. What's that ratio? Do you feel comfortable with that? And if you're not comfortable, new contributions, you can start shifting the balance into fixed income if that's the issue. I like the equation 110 minus your age should be in equities. Use your own numbers.

But for me, that's comfortable. I've ridden through a lot of cycles. I'm not concerned about having a lot of equities in my retirement account because over time, you get higher returns. But it's a matter of being patient and being disciplined. But use your gut. This is a time to look at your asset allocation.

The third thing is-- and this is really key. A lot of people forget this. Check out what kind of fees you're paying on the particular funds in your retirement account in your 401(k). This is super easy to do. You just go to, say it's Vanguard, Fidelity, whoever has your retirement funds. Look at the actual funding.

And it says right at the top, what the fee is. And if you're paying high fees, this can lop off thousands of dollars over the years. This is a cost you can cut. And for me, personally, I like low cost index equity and bond funds because they are the lowest fees out there. So I consider look that up.

The next thing is, target date funds are great. I love the simplicity of that. They automatically adjust as you grow closer to retirement. And keep investing. Do not use this time to get, like, spooked. Keep going because now is the time that you want to continue making these contributions, particularly when the market's down. Then you really have the opportunity to see some boosts down the road.

And the final thing I would say is, if you're nervous, if you feel you're not really in a good place to understand how you're invested, seek out professional help. And a lot of the fund companies in your employer offer help right there for free or low cost. But there's plenty of great resources to go look for a financial planner who can really help guide you and give a sense if you're in good shape and where you feel comfortable.