How to save your retirement portfolio from stagnation

  • The recent drop in the market may scare people from retiring in the next few years.
  • But a financial planner says the market isn’t the only factor to consider when deciding to retire.
  • Consider making a Roth transfer, delaying Social Security, and starting to live on a budget.

In the past six months, the S&P 500 is down 11.27% and the Dow Jones is down 6.15% at the time of writing. While some experts say the market will eventually return, it can still be alarming to see your hard-earned $401(k) disappear seemingly by the minute.

Insider spoke with financial planner Jay Zygmont, founder of live learning plan and a financial blueprint for hundreds of people in the FIRE (financial independence/early retirement) movement, on whether it’s a good idea to retire during a period


Recession

.

“The market is just one part of the retirement decision,” Zygmont says. “Retirement is about a new phase of life and making sure you have the funds to pay for that new phase. With the recent downturn in the market, it’s time to reassess to see if your plan is working.”

It’s “quite possible that you won’t be able to afford retirement right now,” he says, but there are ways to use the slack to adjust your plan appropriately and build a new strategy with your financial planner or financial mentor.

Here are three steps you can take to proactively protect your retirement money from a recession.

1. Consider transferring a 401(k) or traditional IRA to a Roth

“Now might be a good time to do Roth conversions,” Zygmont says.

a 401(k) An employer-sponsored retirement plan where employees can contribute pre-tax income and allow it to grow. that Irish Republican Armywhich stands for Individual Retirement Arrangement, is similar to a 401(k) but is available to anyone who makes money, no matter who you work for.

401(k)s and traditional IRAs are funded with pre-tax dollars, which means you’ll need to pay taxes when the money is finally used in retirement. on the other side, roth accounts It’s funded with after-tax money, which means you won’t have to pay taxes when you withdraw the money when you retire.

Zigmont says, “When you make a transfer, you pay taxes now, but the amounts transferred into a Roth IRA grow tax-free and They come out tax free.”

And he adds, “Keep in mind that a 401(k) has Minimum Distributions Required,” — or RMDs for short, withdrawals you have to make from retirement accounts annually, starting at age 72 — “So if you have a Roth 401(k), make sure you convert that into a Roth IRA after you quit because your Roth IRA doesn’t have RMDs”.

2. Reevaluate your Social Security plan

Zigmont recommends going to ssa.gov to download the latest files Social Security Benefits statement. “Your Social Security statement will tell you how much you would get if you started claiming Social Security now and every year from now on. Every year you put off getting Social Security, the amount you get goes up every month (for life).”

He says Social Security benefits have an internal cost-of-living adjustment, which is 5.9% in 2022.

Some people may choose to start drawing out their Social Security benefits now, Zygmont says, but he adds this caveat: “If you feel you need to make your Social Security payments now to offset a falling market, remember that you’re making a choice that affects the rest of the world.” your life.”

3. Start living on a stable income now in preparation for retirement

At the end of the day, the best way to prevent a slump in your retirement plan is to start adjusting to low fixed income as soon as possible. “If you feel things are going to be ‘tight,’” Zygmont says, “you may need to change your retirement date. Start living on a budget now as if you had a steady income and see if you are okay with it.”

If you are really worried, he also suggests using financial software that can run Monte Carlo simulation, which determines how your retirement plan will operate depending on where the economy is located by the time you retire. “This simulation will give you a number that reflects the chances of you running out of money,” he says.