Saving money for retirement is important, because without a solid nest egg, you might end up struggling financially once your career wraps up. Now ideally, you won't just save for retirement by socking cash away in a savings account. A better bet is to open an IRA and invest your money so it can grow into a larger sum over time.
But investing carries risk, and you may find that the value of your IRA declines at different points during your career. This can be quite unsettling. But rest assured it's really nothing to worry about.
When you're not ready to tap your IRA
A decline in your IRA's value has the potential to be problematic if you're already in retirement and are taking withdrawals. That's because cashing out investments while they're down means locking in permanent losses.
A good way to avoid that is to make sure to retain enough cash in the bank to cover one to two years' worth of living expenses in retirement. That way, you can potentially leave your IRA alone to regain lost value.
Meanwhile, the value of your IRA might rise and fall quite a bit during your career. And while seeing your balance rise is always a nice thing, seeing it fall is clearly the opposite.
But one thing you need to realize is that it's normal for IRA values to fluctuate. And if you're many years away from retirement, you shouldn't lose sleep over the fact that your IRA has lost some value.
If the stock market is going through a rough patch, that alone might cause the value of your IRA to drop. Or, it may be that you're heavily invested in a few companies whose share prices have plummeted.
Either way, if you're in your 30s or 40s, for example, with no plans to tap your IRA for another 20 to 30 years, then drops like that aren't something to stress about. In time, your IRA is likely to regain lost value if you simply leave it alone.
Case in point: During the first quarter of 2018, the average IRA balance was $106,100, reports Fidelity. By the fourth quarter of 2022, the average balance had dropped to $104,000.
But as of the first quarter of 2023, the average IRA balance was back up to $109,000. So it just goes to show that there's really no need to panic over a temporary drop in your IRA's value -- even if that drop lasts for months or even years.
It helps to think long term
It can definitely be disheartening to see the value of your IRA decline, especially when you're working so hard to pump money into it. But remember, you may not be looking to use the money in your IRA account for another 20, 30, or 40 years. And a lot can happen over time.
So don't get hung up on a drop in your IRA balance, and also, don't check your balance all that frequently. A glance every three months is appropriate, but beyond that, you may only be torturing yourself needlessly.
