Should I Move My 401(k) to Cash? Read This Before You Click "Sell"

Late at night, some retirees type a question like this into a search bar: "Should I move my 401(k) to cash?"

If that has been you, you are not foolish. You are human. The headlines are loud, you have worked hard for this money, and you do not have thirty years to recover from a mistake.

But fear is a poor financial advisor. Before you click "sell," walk through this.

When someone asks, "Should I go to cash?" it can mean one of three things:

• "I'm afraid I'll need this money soon and it won't be there."
• "I can't sleep watching the balance move."
• "I heard someone say a crash is coming."

Each of those has a different answer. Only the first is really a portfolio question.

Psalm 112:7 (KJV) describes the righteous man: "He shall not be afraid of evil tidings: his heart is fixed, trusting in the LORD." That does not mean he ignores the news. It means the news does not run his life.

Nobody can reliably predict a market crash, including the people who sell predictions. We certainly cannot. Markets will rise and fall. Plans should be built expecting both.

Staying invested has risk. Stocks can lose value, sometimes sharply, and you could lose money, including principal.

Going to cash has risks too, and they are quieter:

• Timing risk. Getting out is one decision. Getting back in is a second one, and a moment that feels comfortable may never come.
• Inflation risk. Cash and money market funds may not keep pace with rising costs over a long retirement. Money market funds are not FDIC-insured and can lose value, though they seek to preserve it.
• Tax risk. Inside a 401(k) or IRA, moving between funds generally does not trigger tax. In a taxable account, selling can create capital gains.
• Longevity risk. A 65-year-old may need this money to last 25 years or more.

None of this means cash is bad. Holding an appropriate amount of cash is wise. Moving everything out in a panic is a different thing.

Ecclesiastes 11:2 (KJV) offers ancient advice: "Give a portion to seven, and also to eight; for thou knowest not what evil shall be upon the earth." Diversification is not a modern invention. Neither is humility about the future.

Instead of "all in" or "all out," one approach some retirement income plans use is to separate money by when it will be needed:

1. Near-term money (roughly the next one to three years of withdrawals) held in cash or lower-volatility investments.

2. Mid-term money in a balanced mix.

3. Long-term money that can be invested for growth potential and has time to ride out declines.

Diversification and asset allocation do not ensure a profit or protect against loss in declining markets. But a plan built this way is designed so that a bad year in stocks does not force you to sell stocks to buy groceries.

• Write down why you want to move. If the reason is a headline, sleep on it.
• Check your 401(k) plan's rules for transfers and any restrictions.
• Ask how much you will withdraw in the next 36 months and where it will come from.
• Pray, and talk with your spouse.
• Consider a second opinion from a qualified professional.

If market swings are costing you sleep, a calm look at your whole plan is a good place to start. Take the free Retirement Paycheck Readiness Scorecard at scorecard.matt25capital.com, or call our office at 620-670-9455.

• When markets get loud: what long-term investors can do
• A faith check for your 401(k)
• Stewardship and your retirement paycheck

I'm Will Snodgrass, CFP®, with Matt25 Capital, serving Christian pre-retirees and retirees in The Woodlands, Houston, and across Texas.

• Psalm 112:7, Ecclesiastes 11:2 (KJV)
• SEC Investor.gov money market funds