As Markets Turn Volatile, What Should You Do with Your 401(k)? | BU Today
Questrom’s Mark Williams weighs in on best investment and retirement-saving practices as the US faces a potential recession
The numbers started dropping…and then they kept dropping.
If you’ve been paying attention to the economy these past few weeks, you probably have major concerns about your investments. After reaching a peak in February, the US stock market, a leading indicator of economic performance, dropped by more than 10 percent, at one point losing approximately $5 trillion in value. The losses, which market analysts largely attribute to President Donald Trump’s tariff war with Mexico, Canada, China, and the European Union, have led to higher prices for goods and general financial uncertainty for both businesses and consumers.
This market selloff points to “a growing economic slowdown and elevated chance of recession,” says risk-management expert Mark Williams (Questrom’93), a master lecturer in finance at Boston University’s Questrom School of Business.
Also concerning: in early March, a gross domestic product (GDP) forecasting model used by the Federal Reserve Bank of Atlanta predicted a negative 2.8 percent GDP growth forecast for the first quarter of 2025. (As of publication, the forecast was at negative 1.8 percent.) GDP, or the monetary value of all goods and services produced in a country within a period of time, is another key predictor of economic health.
i dont know much about stocks. are they supposed to go down all the time?
— derek guy (@dieworkwear) March 10, 2025
“Such a drop, if realized, would be the largest since 2009,” Williams says. Even more worryingly, “if GDP declines for the next two consecutive quarters, the US economy could fall into recession as soon as June.”
What does all of that mean for 401(k)s and other retirement and investment accounts? (Note: Boston University offers its employees 403(b)s, the 401(k) equivalent for employees of not-for-profit companies and other organizations.)
Overall, a 401(k) plan, which allows you to invest your pretax earnings toward your retirement, Williams says, “should be a long-term investment vehicle that you reassess on an annual basis to reflect your risk tolerance, your age, and how close you are to retirement.”
BU Today asked Williams, a former bank trust officer and a past faculty chair of BU’s Compensation & Benefits Committee, about best practices for saving for retirement during periods of economic volatility.
One key takeaway: “The best way to lessen the financial loss caused by a sudden downturn in the market is to diversify” your holdings to include stocks and bonds, especially as you get closer to retirement age, Williams says. “The adage ‘don’t place all your eggs in one basket’ goes a long way in creating a lower-risk retirement portfolio.”
Q&A
with Mark Williams
BU Today: So, the market took a serious plunge over the last couple of weeks and is seeing only modest improvement in recent days. Knowing that, what should investors be concerned about regarding their 401(k)s, and can you offer any reassurance?
Mark Williams: For 401(k) holders closer to retirement age, the current stock market sell-off and growing threat of economic recession are troubling. It’s hard to see your retirement savings evaporate by 10 percent in a matter of weeks, and it increases concern of how much higher losses could rise in the future. Recent market declines are particularly stressful as stocks tend to represent the single largest asset holdings in 401(k) plans.
In this current market downturn, there are some reassurances. If you’re younger, you have a longer investment time horizon, and market losses today can be made up in the future. At 20, you might have 40 years to recoup such market losses. But when you’re on the cusp of retirement, such losses can force individuals to defer retirement and possibly work longer.
BU Today: The Trump administration has closed some Social Security field offices and fired some online workers in its efforts to curb government spending, raising concerns of potential Social Security funding cuts (the administration has said it won’t cut benefits). If you’re concerned about Social Security’s solvency, should you focus on putting more into your 401(k) or other investments?
Mark Williams: A seismic shift in the retirement savings landscape could be coming, which, yes, would require a change in investment approach. Possible cuts in Social Security benefits have increased the importance of, and amounts that need to be contributed to, 401(k) plans. One of the best ways to save and build wealth to meet future retirement needs is through investing in stocks. On average, stocks offer higher annual investment returns than bonds, which are less risky. If you’re in your 20s and 30s, you should plan on allocating the majority of your 401(k) investment into stocks. (One strategy is to subtract your age from 100 and invest that amount of your portfolio in stocks.)
However, if you’re in your mid-50s, with less time to recoup losses related to riskier stocks, you might want to consider allocating a greater portion of your retirement savings to bonds. For older investors who feel like their retirement account is falling short of anticipated needs, [I would] take advantage of the 401(k) catchup option, which allows you, depending on age, to contribute an additional $7,500 to $11,250 per year.
BU Today: Generally, what percentage of your income should you invest in your 401(k)?
Mark Williams: How much of your monthly salary to contribute to a 401(k) program is a personal decision and driven by level of earnings, lifestyle, and existing expenses. While it’s unrealistic to assume everyone can afford to maximize their allowed annual contribution (which is currently $23,500), contributing 10 to 15 percent of your monthly salary should be your goal. If that isn’t realistic for you, at minimum it’s advantageous for you to contribute enough to take advantage of [401(k) contribution] matching programs. Many companies offer a matching program of up to, say, 3 percent of your salary. That means if you put in the maximum amount, they will match you, dollar for dollar, up to that same amount. In essence, your money doubles even before you invest it in the market.
BU Today: Is a Roth 401(k), if it’s available to you as an investing option, a better bet than a traditional 401(k)?
Both the traditional and Roth 401(k) investment programs allow for annual salary contributions of up to $23,500. The difference with the Roth 401(k) plan is it only allows after-tax dollars to be contributed. Some people prefer paying taxes up front, knowing that in the future, all withdrawals will be tax-free. However, after-tax contributions mean more of your salary is not available to meet current needs. If you’re able to max out your annual 401(k) plan contribution and still have room to contribute more, a Roth IRA is a good additional investment option. In 2025, individuals can contribute up to $7,000 if they’re under 50 or $8,000 if they’re 50 or older. However, your ability to contribute to these accounts is also limited by your modified adjusted gross income.
BU Today: Retirement can feel like a lifetime away when you’re young. What should people in their 20s and 30s know about saving for retirement?
At that age, there tends to be more focus on meeting current needs, such as paying rent, owning a car, paying down debt, buying groceries, and other spending—all of which directly competes with the ability to squirrel away funds for the future. Starting [to save for retirement] at an earlier age is becoming increasingly important, especially as the cost of living has spiked and retirement programs like Social Security are no longer guaranteed.
As a matter of practice, it’s useful to set realistic investment savings goals, starting small when you’re younger and increasing contribution amounts over time. It’s also helpful to view every earnings period as an opportunity to “pay yourself first” by setting aside a percentage of your salary into a 401(k) plan. Once you’ve begun monthly contributions, it’s important to do an investment checkup each year determining if your contribution level should be maintained or increased.
Remember: If you defer the retirement contribution process until your 40s or 50s, the amount of savings that can be built to satisfy your future needs is much less.
BU Today: How does paying off student loans—which can take up a large chunk of your budget postgraduation—fit into saving for retirement? Should you worry about your loans first and a 401(k) later?
Although college can last 4 years, student debt can last 20 years or more. The decision of how much of your current earnings should be dedicated towards paying down student loan debt versus contributing to a 401(k) plan depends on how much you make, how much you spend, and how [high your interest rates are]. If you’re saddled with higher-rate student debt—such as 10 percent—paying this off sooner should be a priority. If you’re fortunate enough to have lower-interest debt, it’s more advantageous to avoid paying this debt off early. For example: if loan debt is at a low rate, say 5 percent and with inflation at 3 percent, the real cost of carrying debt is only 2 percent. In this scenario, you’re better off contributing more salary towards a 401(k) plan. That strategy allows invested funds to grow tax-deferred at rates much higher than the real cost of your student loan debt.
BU Today: Finally, we’ve seen thousands of federal government employees laid off over the past few weeks. What should people who find themselves suddenly unemployed know about retirement funds?
Greater economic uncertainty increases the chance of job layoffs. Losing a job can be an emotional and stressful experience. Should you become unemployed, reassess your situation by establishing a new budget that can help manage your finances during this uncertain period. Evaluate short-term sources of income, including severance pay, unemployment benefits, or possibly working part-time.
One common mistake that should be avoided is viewing your 401(k) as an income source until you find a new job. The cost of such withdrawals are steep: if you remove funds before age 59½, there is a 10 percent penalty. You will also owe taxes on the amount withdrawn. Plus, those withdrawals are costly in the long term as they erode future appreciation.
Note: BU Employee Wellness is hosting two Retirement Help Desk sessions this spring for faculty and staff to learn more about planning for retirement. Find more information and register here.
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