We put “Haider in the Hot Seat” to answer the questions you are asking! Here are the questions we answered this month.
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How Do I Protect My 401K in Volatile Times?
Well, volatile times can be scary. Whether the economy is on the brink of a recession or the market’s plunging, the inclination during those times might be to make short term decisions like moving your 401K all into cash or shifting it to more conservative. You have to remember, though, your 401K is a long-term retirement plan, so you need to be diversified within a portfolio that’s built to weather ups and downs.
So, the real thing you need to be asking yourself is, how long do I have before I retire? Say you’re 20 or 30 – You have a long runway, so you don’t want to make quick, short-term moves to cash. You actually want to be adding more into it and build a portfolio that is meant to grow. So, it means it’ll come down at some point. If you’re, let’s say 65 and about to retire this year, you want to position your overall portfolio in a more conservative fashion to begin with, so that as the markets are more volatile or the economy is on the brink of recession, you’re not taking the same kind of wild ride.
So, to keep your portfolio safe in volatile times, you really need to start from the allocation you have to begin with going into it.
Is a 401K My Only Option for Retirement Savings?
Well, a 401K is one of many options. You could have a 403B, a 401A, a 457, and those are all employer plans. You could have a self-directed IRA or Roth or SEP IRA. So, there’s a multitude of ways to save.
The differences really come down to the tax structure on those plans, whether it’s tax deferred or tax free, if there’s a matching component or profit sharing.
When it comes down to it, all those plans are utilizing tax breaks and tax codes to separate retirement savings and earmark it for later. You could save for retirement outside of those plans as well, and which ones to use and how to use it really comes down to your specific financial plan and how much you can save in different areas to meet your goals for when you do pull the trigger and retire.
I’m About to Retire. How Do I Use My 401K for Income?
That is a great financial planning question. When you’re looking to retire and use your savings, you need to understand the bigger picture. You need to understand your expenses, not just going into retirement, but through the next 20 to 30 years. You need to understand the income sources you have, how much of your expenses will it cover, and then you can figure out what kind of income you need to generate from your retirement savings, i.e. the 401K, and do the math to figure out how long it’s going to last, and if you can structure it in some different ways to make it last longer, or use other guaranteed income vehicles that could fill that gap for the rest of your life.
So, there’s a lot to uncover there. Revisit your financial plan and talk to your financial advisor. If you haven’t built a plan or don’t have a financial advisor to talk to, please go ahead and click the link below. We also have a quick 3-minute financial planner, where you can input your data and it’ll give you a free financial plan, just showing you the basics, to help you answer some of these questions.
If you would like more information on any of the topics addressed above, please click HERE to schedule a free 30-minute call with Haider Sharifi, CFP®.
