How Market Volatility Affects Your 401(k) and IRA

10.26.2026 | 12 min. read

Reviewer: Mark Zagurski, , CLU®, ChFC®, CMFC® and CRPC®

Key takeaways

Your 401(k) or IRA can lose value when the investments held inside the account fall. How much the account changes depends on what you own and how your money is allocated.¹
A market decline alone doesn’t necessarily mean you should move your retirement savings or change your investment strategy. Your retirement timeline, withdrawal needs and comfort with risk all matter.¹
Diversification can help reduce the risk of having too much money concentrated in one investment or asset class, but it cannot eliminate investment losses.²
Rebalancing means bringing your investments back toward your intended asset mix rather than changing your strategy simply because the market has fallen.²
If you’re already taking withdrawals from a 401(k), IRA or other investment account, market losses may affect your retirement plan differently because money is leaving the portfolio while investment values are down.³

Why is my 401(k) going down?

Your 401(k) can go down when the investments held inside the account lose value. A 401(k) is a retirement account rather than a single investment, so its performance depends on the funds and other investments you hold inside it.¹

Your 401(k) may also fluctuate from day to day because the market value of those investments changes over time. A 401(k) with a larger share invested in stocks, for example, may move more when stock prices rise or fall.

The same basic principle applies to traditional and Roth IRAs. The account rules and tax treatment differ, but the value of an IRA can still rise or fall based on the investments held inside it.

A portfolio that includes stocks, bonds, cash and other investments may react differently because those investments don’t always move in the same direction or by the same amount.¹

Contributions can also continue going into an account while its overall value falls. That doesn’t mean those contributions have disappeared. It means the current market value of the investments has changed.

Before making a change, look at:

Which investments have declined
Whether your overall asset allocation has changed
How long you have before you expect to use the money
Whether your comfort with investment risk has changed
Whether you expect to take withdrawals soon

What happens to your 401(k) if the stock market crashes?

If the stock market falls sharply, stock investments inside your 401(k) may lose value. How much your overall account changes depends on the investments you hold and how your money is allocated.¹

A market decline doesn’t automatically close your account or erase everything you have saved. Your account continues to hold the investments you own unless you sell, exchange or withdraw them.

The same is generally true for an IRA invested in the market. Its value may rise or fall with the investments held inside it.

The more important question is whether your current investment mix still fits your retirement timeline, financial goals and comfort with risk.

Before reacting to a downturn, it can help to separate the decisions you’re trying to make:

If you’re wondering…

What to consider before acting

Should I change my 401(k) investments now?

Whether your current allocation still fits your goals, time horizon and risk tolerance

Should I move my 401(k) to safer investments?

What “safer” means for you, when you expect to use the money and the tradeoff between lower volatility and growth potential

Should I stop contributing to my 401(k)?

Your household cash flow, retirement goals and whether your employer offers matching contributions

Should I rebalance my 401(k) when the market is down?

Whether market movements have pushed your portfolio away from the asset allocation you intended

Should I withdraw money from my 401(k) or IRA?

Whether you need the money now, along with possible taxes, penalties and the effect of selling investments after a decline

How your retirement timeline affects your decisions

How close you are to retirement can affect how you evaluate a market downturn. Someone who doesn’t expect to use retirement savings for another 15 years may have different considerations than someone who expects to begin taking withdrawals next year.

In Mutual of Omaha’s 2026 Retirement Accounts and Tax Rules Study, 55% of adults age 40+ said their age or time until retirement was a factor when deciding which type of retirement account was best for them.**

If you’re approaching or already in retirement, think about which expenses you expect to pay in the near term and where that money will come from. Cash or other liquid savings may be part of the answer, but there isn’t one amount that works for every retiree.

Look at your regular expenses alongside Social Security, pensions, savings, work income and other sources you expect to use. If you’ll need money from investment accounts soon, knowing that ahead of time can help you build a retirement withdrawal strategy instead of making the decision in the middle of a sharp market decline.³

There is also a tradeoff. Keeping more money in cash may reduce short-term market exposure, but cash generally offers less growth potential than investments such as stocks. How much you keep readily available should reflect your spending needs, income sources and broader retirement plan.¹

Should you change your investments when the market is down?

A market decline can be a reason to review your investments, but it doesn’t automatically mean you should change them. Start by asking whether your current asset allocation still fits your retirement timeline, financial goals and comfort with risk.

How diversification can affect market volatility

Diversification means spreading your money across different investments rather than relying too heavily on one company, sector or asset class. A diversified portfolio may include a mix of stocks, bonds, cash and other investments. The right mix is personal and can change as your time horizon, financial circumstances and comfort with risk change.²

For example, if stocks fall more than bonds, a portfolio that started with a particular stock-and-bond mix may end up with a smaller percentage in stocks than you originally intended. The reverse can happen after a strong stock market. That change in proportions is one reason to review your allocation rather than assume your portfolio still looks the way it did when you set it up.²

Diversification can also happen within an asset class. Instead of relying heavily on one company, industry or type of bond, a portfolio may spread exposure across different investments. Diversification can help manage concentration risk, but it does not guarantee a profit or prevent losses when markets decline.²

Watch Make it Personal Podcast

Learn more about average vs. actual returns

Video Transcript

Welcome to the Make It Personal podcast

presented by Mutual of Omaha Adviserss.

Make it personal. It's your money. It's

your plan. It's your

future. There are three primary

assumptions that go into creating a

financial plan that will ultimately have

a big impact on your plan. And there's

one of them that some so-called

financial gurus often get wrong.

Financial planning is only as good as

the assumptions that are built into it.

You know what they say, garbage in,

garbage out. When you sit down and

create a financial plan with an adviser,

you create it based on a number of

variables. Calculations in fact are

generally based on two types of

variables. First are facts or things

that we know that are true at least for

the moment. Facts are things like your

age and income level. Second are

assumptions. These are educated

estimates or predictions about future

events, variables, and conditions that

we believe are reasonable to expect in

the future. Assumptions that we must

make include examples such as when do we

want to retire, how much do we expect

our income to increase each year, and

where do we believe the tax rates will

be when we retire? While facts and

assumptions are necessary for building a

plan, the challenge is that facts will

change and at least some of our

assumptions, if not all, will turn out

to be wrong. While there are many facts

and assumptions that we have to use or

make when we're building a plan, there

are three primary assumptions that hold

a lot of weight. First,

longevity. How long do you expect to

live or how long do you want your money

to last? Second, inflation. How much do

you expect or do we expect the cost of

living to rise over time? Or how will

your expenses and therefore your income

needs in the future be impacted by

rising costs? And third, rate of return.

How much do we expect an investment will

gain or lose over time? Or how will your

money grow in the future both during the

accumulation and distribution phase?

While it's impossible to know what the

future holds, it's critical to ensure

that these assumptions are reasonable.

This is one of the many places that a

trusted adviser can help. Okay, I could

throw taxes out there as well as another

assumption that's important in financial

planning. Instead of talking about taxes

today, I want to focus on rates of

return assumptions. Before I get there,

please let me introduce myself. My name

is Mark Sigurski and I'm the director of

strategy and communication for Mutual of

Omaha Advisors, a division of Mutual of

Omaha. We're nearly a thousand advisors

strong nationwide and each and every day

we help our customers to imagine, plan

and secure their financial futures. So

what's the difference between average

rate of return and actual rate of

return? These are two different things

and they are not created equally. While

financial gurus often tout a 10% annual

growth in the stock market, which may

seem impressive, the actual dollar

amount generated can significantly

differ when you factor in market

fluctuations and real world returns. To

show you the difference between the

average rate of return and actual

results, let's look at a brief example

of a $100 investment over two years.

Let's assume we invest at $100. I'm

using a small number such as $100 in an

attempt to keep the math simple. At the

end of year 1, let's say that you earn

100% return, which is a number we've

chosen to keep the math simple. At the

end of year 1, your money would double

if you earned 100% return, and now you

would have

$200. In year two, unfortunately, you

have a loss of 50%. Again, fictitious

numbers for simple math. After that

negative return of 50%, you're now back

down to your original

$100. The person selling you the

investment would tell you that you have

an average return of 25%. 100% minus 50%

divided by 2 years equals 25%. Does it

feel like you earn

25%. Average rate of return is a simple

calculation. You add up all of your

annual investment returns and divide by

the number of years. Again,

advertisement for investment products

usually leverage average rate of return.

Actual rate of return is a more complex

calculation that adjust for investment

returns to account for both gains and

losses. Let's take a look at an example

with a little bit more to it. For this,

we're going to consider the S&P 500

index. The standard and pores 500 or

more simply the S&P 500 is a stock

market index tracking the performance of

500 of the largest companies listed on

stock exchanges in the United States.

Over the last 30 years ending with

December 2024, the return of the S&P 500

has been 10.59%.

If we invested $10,000 at the beginning

of 1995 or that 30-year period and

simply compounding it by

10.59% average return over the period,

we'd have nearly

$25,000, more specifically

$24,869. Unfortunately, that's not how

the math works. While it's true that the

S&P 500 earned 10.59% over that 30-year

period, it did not earn

10.59% each and every year. Some years

were higher, some years were lower, some

years had positive returns, and others

had negative returns. In fact, in 18 of

the 30 years, the annual return of the

S&P 500 was greater than the 30-year

average of

10.59%. With the highest annual return

over 34% in 1995 during that entire time

frame. Over the 30 years measured, there

were 23 years of positive returns and

seven years of negative returns. And

it's the order or sequence of those

returns that really matter. Yes, the

negatives have an impact and so does the

order of the other returns. As a matter

of fact, had I invested $10,000 at the

beginning of 1995 and kept it there for

30 years, I'd actually have closer to

$131,000 as my real return was

8.97%, not

10.59. Wait a minute. So the S&P 500

have an average annual return of 10.59%

over 30 years. But the real return of

having money invested in the S&P 500

over those same 30 years is

8.97. Yes. And that is the difference

between average returns that you often

hear quoted versus the actual or real

return of having money invested. I fully

accept that you cannot actually invest

in the S&P 500 index. Instead, you'd

have to purchase an S&P 500 index mutual

fund or exchange traded fund, more

commonly known as an

ETF. Investors should be interested in

the actual rate of return, not an

average, as investment losses can easily

be hidden by using an average rate of

return. How does this manifest itself as

you watch videos or content from

so-called financial celebrities online?

They may tell you something such as the

S&P 500 earned 9% over the last 20 years

and therefore you're okay to withdraw 9%

from your account during your

retirement. While the example is made

up, the point is that many so-called

financial gurus may lead you to rely on

average returns instead of real or

actual returns. Back to where we started

talking about assumptions. Where can

assumptions like this lead you astray in

your planning? First is when making an

assumption about how much your money may

grow during the accumulation phase. We

need to make sure that our growth

assumptions during the accumulation

phase are both realistic and aligned to

our tolerance for taking risk. We run

the risk of overinflating our

projections. If we fail to align our

rate of return assumptions with reality,

this may lead to us ultimately

underfunding our plan. Second is when

making assumptions about how much your

money will grow during the distribution

phase or as importantly the percentage

of withdrawals we can make to generate

an income each year in retirement.

Basing our withdrawal on the

10.59% average return instead of the

8.97% real rate of return may well lead

us to running out of money earlier than

we expected. As we discussed before, one

of the major risk that retirees face

today is outliving their money. You need

a plan to help ensure that your money

outlives you. Making assumptions are

necessary when it comes to creating a

financial plan or retirement plan. All

assumptions are wrong. Some assumptions

are useful. Let me say it this way. All

assumptions are wrong. and that we know

whatever we use for our rate of return

assumption, for example, is not very

likely to be our actual or real rate of

return over time. Yes, a broken clock is

right twice per day. It's one thing to

create a plan. It's another thing to

regularly update it and yet another to

stick to it. This is where a trusted

adviser can help and quite frankly where

they earn their keep. Reviewing your

plan at a minimum of once per year and

making small but regular adjustments

greatly improves the chances of reaching

your goals. The truth about making

disciplined financial decisions as well

as attaining the financial goals you may

have is that they can be solvable with

the help of a financial adviser. There

are a lot of places where people seek

financial advice or guidance on personal

finance. The thing about personal

finance is it's personal. If you want

your plan to be personal, it has to be

tailored to you. It's never too early to

create a plan to give you the financial

security and freedom you deserve. Take

control of your finances and your future

and schedule a no obligation

consultation with one of our adviserss

today. Go to

www.mmakeitpersonalpodcast.com to learn

more to get connected with an adviser or

download our ebook or subscribe to our

monthly newsletter. Also, please like

and subscribe our podcast. Besides the

assumptions that I mentioned, are there

others that are part of your plan that

you're concerned about? What did I miss?

If you're watching or listening on a

platform where you can comment, please

do so as I'm curious for your thoughts.

At Mutual of Omaha Advisors, we

understand that personal finance is

personal and financial well-being is

essential to achieving your life's

goals. Our vision is for every customer

to be able to imagine, plan, and secure

their financial future. Make it

personal. It's your money. It's your

plan. It's your

future. This podcast is for educational

purposes only and may include references

to concepts that have legal and/or tax

implications. Mutual of Omaha Investor

Services, Inc. does not provide tax or

legal advice. Please consult with the

appropriate professional regarding your

personal situation prior to making any

financial decisions. Strategies

discussed may not be suitable for

everyone. Securities and advisory

services offered through Mutual of Omaha

Investor Services, Inc., member FINRA

SIPC. Mutual of Omaha Advisers is a

division of Mutual of Omaha Insurance

Company.

Should you stop contributing to your 401(k) when the market is down?

A market decline alone doesn’t necessarily mean you should stop contributing to your 401(k). Before changing contributions, consider your household cash flow, retirement timeline and broader financial goals.

If your employer offers matching contributions, review how reducing or stopping your contribution could affect that match.⁴

It can also help to separate a market decision from a cash-flow decision. If your household budget, income or emergency expenses have changed, you may have different considerations than someone thinking about stopping contributions only because investment values have fallen.

A recession or market downturn can change how you feel about risk, but it doesn’t automatically change your long-term retirement goals. Review what has changed in your own situation before making a contribution decision based only on market conditions.

Should you rebalance your 401(k) when the market is down?

A market decline doesn’t automatically mean you should rebalance your 401(k) or IRA. Rebalancing is meant to bring your portfolio back toward your intended asset allocation when market movements have caused it to drift.²

Market movements can push your investments away from the asset allocation you originally chose. Rebalancing focuses on restoring that intended mix rather than changing your strategy simply because markets moved.

For example, imagine your target is 60% stocks and 40% bonds. Market performance can cause those percentages to change over time. Rebalancing would bring the portfolio back toward the allocation you intended.²

How does rebalancing work?

There are several ways to rebalance retirement money, depending on the investments and features available in your account:

Sell some investments that have moved above their target weight and use the proceeds to add to investments that are below target.
Direct future contributions toward investments that are below their target weight until the portfolio moves closer to your intended allocation.²
If your plan offers automatic rebalancing or a target-date fund, review how that feature works before making additional changes. Some target-date funds adjust their investment mix over time as your target retirement date approaches.⁶

How often should you rebalance?

There isn’t one rebalancing schedule that fits every investor. Review your portfolio periodically and when your financial circumstances, goals or retirement timeline change. The point isn’t to react every time the market moves. It’s to see whether your allocation still reflects the level of risk you intended to take.²

If rebalancing involves selling investments in a taxable account, there may be tax consequences. Review current tax guidance or speak with a tax professional before making decisions based on taxes.

How market downturns can affect retirement withdrawals

If you’re still years from retirement, a market decline mainly affects assets you’re continuing to build. Once you begin relying on those accounts for income, market performance and withdrawals become more closely connected.

For many retirees, a 401(k) or IRA is only one part of that income picture. 65% of retirees and 68% of people nearing retirement expect to have at least three sources of income during retirement.* Those sources may include Social Security, retirement accounts, savings, pensions, investments, annuities or work income.

Taking withdrawals while investments are down can leave less money invested to participate in a potential recovery. That’s one reason the timing of market losses can matter more once you begin drawing income from your portfolio.

As Mark Zagurski, CLU®, ChFC®, CMFC® and CRPC®, director of strategy and communications at Mutual of Omaha Advisors, explains, “Losses are linear, but the required gains to offset those losses can be exponential.”

For example, an investment that falls 20% would need to gain 25% from its new, lower value to get back to where it started. If withdrawals are also coming out of the account, there may be less money remaining to participate in a potential recovery.³

That doesn’t mean every market decline calls for a change. If you’re already drawing from your savings, look at how much of your spending comes from Social Security, pensions, cash and other income sources and how much still needs to come from your 401(k), IRA or investments.

Having a plan can also make the transition from saving to spending easier to navigate. 74% of retirees and 78% of people nearing retirement said having a clear plan makes them feel comfortable spending in retirement.*

What to consider before making a change

A market downturn can be a reason to review your retirement plan, but it doesn’t automatically mean you should change it. As Zagurski says, “The thing about personal finance is that it’s personal.”

Before changing investments, contributions or withdrawals, consider:

Your retirement timeline: Has when you expect to retire or use the money changed?
Your near-term needs: Do you expect to take withdrawals soon?
Your asset allocation: Has market movement pushed your investments away from the mix you intended?
Your financial situation: Have your income, spending needs or comfort with risk changed?

If you’re unsure how those pieces fit together, a financial professional can help you review your 401(k), IRA and other retirement savings in the context of your broader retirement plan.

Keep market volatility in perspective

Market volatility can be uncomfortable, especially when retirement is close. A falling account balance is a reason to review whether your investments, near-term spending needs, and timeline still align. To take the next step, explore Mutual of Omaha's retirement income calculators, or connect with a financial professional to stress-test your portfolio.

Explore Retirement Planning Resources

FAQs about retirement savings during market volatility

Where should I move my 401(k) before a market crash?

There isn’t one universally “safe” place to move a 401(k) before a downturn. Stocks, bonds, cash and other investments carry different types of risk, and trying to predict exactly when the market will fall creates another decision: when to invest again.

If your current allocation feels too volatile, review whether it still fits your retirement timeline and comfort with risk. That review may lead to rebalancing or another change, but it doesn’t necessarily mean moving the entire account into cash or a single investment.¹

Should I pull my 401(k) out of the market?

Selling investments after a sharp decline can turn a decline in market value into a realized loss on the investments you sell. It can also leave you with a second decision: when to invest again.¹

Taking money out of the retirement account entirely is different from changing investments within the account. A withdrawal may be taxable and, depending on your age and circumstances, may also be subject to an additional 10% penalty unless an exception applies.⁵ Review current IRS guidance or speak with a tax professional before making a withdrawal based on tax considerations.

Are Roth IRAs safe from market crashes?

A Roth IRA’s tax treatment does not shield the investments inside it from market losses. Roth IRAs are investment accounts, and their value can rise or fall depending on the investments held in the account.⁷

If your Roth IRA declines during a market downturn, look at the investments and asset allocation inside the account before assuming the Roth IRA itself is the problem. Your retirement timeline and the role the account plays in your overall plan may matter more than the type of account.

Sources:

*Mutual of Omaha 2025 Decumulation Study. Mutual of Omaha worked with research vendor quantilope to survey 496 adults age 50+ who were already retired or expected to retire within the next 10 years.

**Mutual of Omaha 2026 Retirement Accounts and Tax Rules Study. Mutual of Omaha worked with research vendor quantilope to conduct a 5-minute online survey of 300 respondents age 40+ with annual household income of $50,000 or more. Research was conducted Feb. 6-9, 2026.

Financial Industry Regulatory Authority (FINRA), “Volatility,” n.d.
https://www.finra.org/investors/investing/investing-basics/volatility
Financial Industry Regulatory Authority (FINRA), “Asset Allocation and Diversification,” n.d. https://www.finra.org/investors/investing/investing-basics/asset-allocation-diversification
Financial Industry Regulatory Authority (FINRA), “Managing Your Retirement Portfolio,” n.d. https://www.finra.org/investors/learn-to-invest/types-investments/retirement/managing-retirement-income/managing-your-retirement-portfolio
U.S. Department of Labor, “401(k) Plans for Small Businesses,” n.d. https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/publications/401k-plans-for-small-businesses
Internal Revenue Service, “Retirement Topics — Exceptions to Tax on Early Distributions,” n.d. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions
U.S. Securities and Exchange Commission, Investor.gov, “Target Date Funds — Investor Bulletin,” March 25, 2025. https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins/target-date-funds-investor-bulletin
U.S. Securities and Exchange Commission, Investor.gov, “Individual Retirement Accounts (IRAs),” March 24, 2026. https://www.investor.gov/introduction-investing/investing-basics/investment-accounts/tax-advantaged-accounts/retirement-savings/individual-retirement-accounts-iras

Reviewed by: Mark Zagurski, CLU®, ChFC®, CMFC® and CRPC®

Director of Strategy & Communications, Mutual of Omaha Advisors

With more than 30 years of experience, he has worked extensively in advisor development, strategy, and communications, focusing on helping advisors and their clients make informed financial decisions. He is also the host of the Mutual of Omaha Advisors podcast, “Make it Personal,” which explores personal finance and strategies to help you take control of your money and future.