Protect Your Retirement Plan Against A Recession
The goal of planning for a recession is to avoid any possible financial pain. The government is doing what it can to protect retired or close-to-retiring Americans, but there are steps you should take.
Heed some advice from advocate advisors at Global View—we help those retiring in Greenville, SC, to position themselves carefully for what’s to come.
Use this quick guide to protect your retirement plan against a recession.
It’s essential to keep in mind that your retirement savings aren’t guaranteed. Your money is vulnerable to fluctuations in the market, inflation, and crashes. Market manipulations and downturns can also affect your investments and cause them to lose value.
The risk to your retirement plan changes constantly. As you near retirement age, you must figure out how to manage the rest of your life. The stock market and other financial markets can be volatile at any time, so it’s important to keep up with current events to ensure you can retire comfortably.
A CERTIFIED FINANCIAL PLANNER™ in Greenville, SC, at Global View can assess the current risk within your investment portfolio, which supports your overall retirement plan. Request help with that here!
The government does not protect 401(k) plans. They are protected by the Employee Retirement Income Security Act of 1974 (ERISA), but the protection is limited to your employer’s assets and cannot be used to pay creditors.
IRAs, however, are fully protected from bankruptcy. For example: if you file for bankruptcy and owe money on a credit card, your IRA is safe while the debt is being paid off. Additionally, IRA funds can pay off debt without penalty or tax consequences for cashing out early.
However, the government offers assistance in retirement via Social Security and Medicare (more on that in Chapter 5).
The retirement community at large should be aware of protection options available for their savings accounts.
FDIC and SIPC insurance
The Federal Deposit Insurance Corporation (FDIC) offers protection to depositors up to $250,000 at each bank or credit union. The Securities Investor Protection Corporation (SIPC) has a similar guarantee for securities held in brokerage accounts. Ask our fee-only advisors about these options to learn more.
If you’re married and filing jointly, you can shield up to $5 million of your IRA savings from taxes on any withdrawals made before reaching age 59½. Five additional tax-deferred retirement plans offer different protections from the IRS:
- IRAs: 529A/B/C/D/E
These plans allow you to invest money in stocks, bonds, or mutual funds with pre-tax dollars—meaning there’s less money taken out of your paycheck each month. You can later withdraw them without paying penalties other than federal income tax (though there may also be state taxes).
As advocate advisors, we remind you to be prepared for the worst. You don’t want to be on the road to Broke-ville!
The best way to protect your retirement plan against inflation or a recession is by not letting yourself get caught by surprise. When you ignore the facts and don’t prepare, it’s like walking into the middle of a war zone without knowing what’s happening around you—which can be devastating during times like these.
Instead of panicking or investing in something without knowing how it works (and thus making mistakes), think about how you can protect yourself from this current economic crisis. Don’t become another retirement horror story!
Your goal shouldn’t be to avoid losing money (that would require an unrealistic amount of luck) but rather to ensure that losses are minimal enough that they won’t affect your retirement.
Do you know how long you should estimate for your retirement years? Read this article and use the longevity calculator.
Do you have a pension? Are you counting on Social Security to fund your retirement? If so, then don’t forget about these critical sources of income.
This government-sponsored pension program provides monthly payments to retirees who meet specific requirements. Payments are based on your earnings history and how much in taxes you’ve paid throughout your career—the more money you earn during that time, the higher your monthly benefit will be once you retire.
As a Registered Social Security Analyst with the National Association of Registered Social Security Analysts and a financial advisor in Greenville, SC, take a look at these FAQs on Social Security strategies for married couples.
Do you have income from a pension plan? This company-funded retirement plan aims to pay workers an income once they reach an age where they no longer have regular employment, with the firm paying them out. Companies will typically contribute a portion of their employees’ salaries toward this investment for them each month.
However, how much companies contribute can vary greatly depending on their financial health and how well-funded their pensions are.
Maybe you have other sources of income, such as real estate, to rely on. Whatever the case, the key is to strategize within each resource.
Do you have an emergency fund?
In a downturn, you’ll want to ensure that you have enough cash to keep your retirement plan from taking a hit. While having this fund is essential for everyone, it’s especially crucial if you’re in your early retirement years and still have many years until full retirement age. The amount of money needed will vary depending on how long until full retirement age and what type of investment options are available within your 401(k).
There are some vital steps to ensure you act in your best interest. We will be here to make sure of that:
- Don’t panic: The stock market will recover from a recession, but it may take years to get back to your pre-recession levels.
- Don’t make rash decisions: You’ve worked hard for your retirement plan, and you need to protect it to continue enjoying the benefits of your investments.
- Don’t sell low: When the economy is struggling, stocks tend to fall because investors are worried about future losses. That’s why it’s important not to sell at rock-bottom prices—you could miss out on future gains and possibly lock yourself into selling at an unreasonably low price point if things improve before you realize what’s happened!
- Don’t buy too much when times are good – or too little when they’re bad: Your portfolio should be well balanced between growth stocks, value stocks, small-cap companies, and international investments so that no one type hurts another if there is a downturn (or helps one if there is an upswing).
Diversification is the only way to manage risk. There’s no such thing as a risk-free investment. Suppose you diversify your portfolio by having holdings in different types of investments and asset classes. In that case, your risk level will be much lower than if you invest in a kind of investment (like concentrated stock options).
Diversification is the key to protecting your retirement, but it’s not as easy as putting your eggs in a few different baskets. You can’t just put money into several other funds and expect everything to work fine, especially during a recession. You must consider more than just what the investments will do for you—think about how they’ll affect each other and how they’ll respond when the market tumbles.
Explore other investments, such as bonds or real estate funds. Diversifying isn’t about getting every penny invested into different types of assets. It’s about reducing risk by spreading funds around instead of putting all your money in one place.
Savvy advocate advisors can help you diversify your retirement portfolio to lower its volatility and protect it against recessions. Ask financial planners about possible alternatives to preserve your retirement savings while minimizing losses during market downturns.
Rebalance your portfolio (with caution)
Rebalancing is a way to keep your portfolio in line with your financial goals. If the value of one asset class has risen above the others, rebalancing brings it back to its long-term average weighting. This ensures that you’re not overinvested in any one area of the market and that you’re still achieving your investment goals.
It’s important to note that rebalancing isn’t a way to time the market or forecast when stocks will get higher or lower. It simply ensures that one asset class doesn’t outperform all others during a specific period. Then those gains are distributed equally among all funds following a reallocation process so they don’t cause imbalances over time).
Our retirement financial planners in Greenville, South Carolina, work on a fee-only basis, which means we are NOT salespeople.
- We do not receive any commissions or incentives from the products we recommend.
- We are fiduciaries, which means we have an ethical obligation to act in your best interests at all times.
- We don’t get paid by any investment company or anyone else who has an interest in what you invest in.
To be clear, we are not fans of market timing.
The market always goes up, but it never goes down.
These words are often used as a mantra by those who advocate for market timing as a strategy for investing in the stock market. You can predict when the market will rise—and when it will fall—by using indicators such as Dow Theory or reading charts and graphs that tell you what’s happening on Wall Street at any given moment.
We’re not fans of this strategy because we believe predicting what happens next in the stock market is impossible (though many people will try). The markets are too large and complex to accurately predict their movements based on historical data alone. It’s also important to remember that the past does not signify our future returns; if it did, then there would be no such thing as long-term investing!
Don’t panic—instead, always be prepared for events such as a recession. Some things are logically scary, but the market is not one of them. You need to accept that recessions happen and that they’re natural cycles.
The good news is that we’ve seen storms like this before, and we’ll see them again—and it’s essential for you, as an investor, not to panic when they occur. The first thing you should do when a recession hits is taking a deep breath and relax. Your investments will be fine; they’ve been through this before and will survive just fine again.
Protect your retirement plan against a recession with preparation.
- Make sure you have a comprehensive financial plan in place.
- Hire a team of advocate advisors to serve by your side.
- Ensure that your wealth managers have experience in risk management and diversification strategies for your retirement assets.
- Discuss how your assets will fare under various market conditions.
A recession may be inevitable, but it doesn’t have to be the end of the world for your retirement plan. With professional planning and preparation, you can protect yourself from losses. A financial advisor at Global View looks forward to speaking with you about worry-free portfolio management—give us a call or schedule an appointment today!