How to save your retirement portfolio from a recession

  • The recent market decline could scare people away from retiring in the next few years.
  • But one financial planner says the market isn’t the only factor to consider when deciding whether to retire.
  • Consider a Roth conversion, delay Social Security, and start living on a budget.

Over the past six months, the S&P 500 is down 11.27%, while the Dow is down 6.15% at the time of writing. While some experts say the market will eventually make a comeback, it’s still nerve-wracking to see your hard-earned $401(k) seemingly disappearing every minute.

Insider spoke with financial planner Jay Zigmont, founder and financial planner of Live Learn Plan, to hundreds of people participating in the FIRE (Financial Independence/Early Retirement) movement about whether retirement is a good idea during the economic crisis .

economic recession


“The market is only part of the decision to retire,” Zigmont said. “Retirement is both about a new phase of life and making sure you have the funds to cover the costs of the new phase. With the recent downturn in the market, it’s time to reassess whether your plans are efficient.”

“It’s entirely possible that you won’t be able to afford retirement right now,” he said, but there are ways to use the recession to properly adjust your plans and work with your financial planner or advisor to develop new strategies.

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

1. Consider converting your traditional 401(k) or IRA to a Roth account

“Now might be a good time to make a Ross switch,” Zigmont said.

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

Traditional 401(k)s and IRAs are funded with pre-tax funds, which means you pay taxes when you eventually use those funds in retirement. On the other hand, Roth accounts are funded from after-tax dollars, which means you don’t have to pay taxes when you withdraw your funds in retirement.

“When you convert, you pay tax now, but the amount converted to a Roth IRA is tax-free,” Zigmont said. They come out tax free. ”

He added, “Remember, 401(k)s require minimum distributions” — or RMDs for short, that you must withdraw from your retirement account every year starting at age 72 — “so if you have a Roth 401(k), Be sure to transfer it to a Roth IRA after you stop working, because a Roth IRA doesn’t have an RMD.”

2. Reassess your Social Security plan

Zigmont recommends going to to download your most recent Statement of Social Security benefits. “Your Social Security statement will tell you how much you’ll get if you start claiming Social Security now and every year in the future. Every year you delay taking Social Security, the amount you get each month (for life) increases.”

Social Security benefits have a built-in cost-of-living adjustment of 5.9 percent through 2022, he said.

Some people may choose to start withdrawing from their Social Security benefits now, Zigmont said, but added: “If you feel like you need to collect Social Security now to make up for a down market, remember that you’re working on a situation that affects the rest of your life. s Choice.”

3. Start living on a regular income now and prepare for retirement

At the end of the day, the best way to make your retirement plan recession-proof is to start adjusting to a lower regular income as soon as possible. “If you feel like things are going to get ‘tight,’ then you may need to change your retirement date,” Zigmont said. “Start living on a budget now, as if you had regular income, and see if you’re still using it.”

If you’re really anxious, he also recommends using financial software that can run Monte Carlo simulations of how your retirement plan will work based on your financial situation when you retire. “These simulations give you a number that reflects how likely you are to run out of money,” he said.

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