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7 Retirement Planning Steps for Turbulent Times—and Beyond

  • What actions should you be considering now?

What we’re experiencing is something the world, country, economy, and markets have never seen before. Amidst all of this, you probably have plenty of other issues on your mind, but the fact is that what’s happening is likely affecting your plans for retirement. To help you stay, or get back, on track now and down the road, here are seven retirement planning steps to consider.

1. Be strategic during market volatility

When the markets have been stable for a long period, it can be easy to forget how volatile they can be. Then when volatility occurs, it can be hard to think about anything else—and that may prove costly.

When there’s a market downturn, the natural temptation often is to flee—that is, sell. Unfortunately, that’s not always a good move, especially if everyone else has the same idea, which will likely drive down prices. As a result, you may end up doing just the opposite of your goal, presumably, to buy low and sell high. And if you sell for a loss in a tax-advantaged account, such as an IRA or 401(k), you won’t even have the potential for immediate tax benefits to offset your loss that you may get with a taxable account.

You know there are going to be volatile periods; so rather than panicking, be strategic.

You know there are going to be volatile periods; so rather than panicking, be strategic. Historically, volatile times have proven to be opportunities for smart investors; of course, there’s no guarantee that the same will be true now or in the future. However, working with a financial advisor can help you react logically and not emotionally, which should help you continue to work toward your goals.

2. Stay abreast of changes in legislation

You should be aware of important provisions in the SECURE Act affecting required minimum distributions (RMDs) and CARES Act also pertaining to RMDs as well as loans from employer-sponsored retirement plans, such as 401(k) and 403(b) plans. And this may be only the beginning. As Congress continues to work through these uncertain times, keep an eye out for possible additional changes affecting your plans.

3. Have an appropriate asset allocation

How you should allocate your investments across different asset classes (stocks, bonds, cash, etc.) varies depending on a number of factors. Primarily, these are what you want your investments to help you achieve (objectives), how comfortable you are with market volatility (risk tolerance), and how long it will be before you plan to retire (time horizon).

Depending on your situation, determining an appropriate asset allocation can be complicated. For help, consider turning to a professional financial advisor who can work with you to pinpoint your objectives, determine which are most and least important to you, and create a plan including a detailed asset allocation to help you reach them.

4. Hold the right amount of cash

Cash, or more accurately, “cash alternatives,” plays an important role in retirement planning. The money you have in cash alternatives, such as bank savings accounts or certificates of deposit, is readily available for dealing with emergencies such as a job loss or expensive home repair while avoiding tapping into your retirement accounts.

To help protect your family, consider keeping an emergency fund with enough money to cover three to six months of living expenses if both you and your spouse or partner are working. Six to nine months of living expenses are recommended if only one person is working outside the home.

While having cash available is important, be sure to hold the right amount for your situation. The problem with cash—especially when interest rates are low like now—is its little return potential, which might not even keep up with inflation. As a result, you may end up essentially losing money on your cash holdings. This is especially true with an account where your interest is taxable. That’s why it’s essential to hold only as much cash as is necessary.

5. Control your spending

Getting a handle on your spending and creating a budget now can significantly increase your retirement confidence.

Getting a handle on your spending and creating a budget now can significantly increase your retirement confidence. Look at your credit card bills and bank accounts to see where your money is going.

When analyzing your spending, be sure to break it down into what’s essential (food, housing, health care, etc.) and discretionary (restaurants, entertainment, travel, etc.). Using this, you can determine where you can make cuts when there’s a market downturn—especially in retirement. By reducing your discretionary spending during these periods, you should be able to withdraw less from your portfolio, which may help your investments last longer. If the market rebounds, you can then return your spending to normal.

6. Talk to your spouse or partner

If you’re part of a couple, you both should be on the same page regarding your investments. To get there, you need to discuss what you have today and agree on your plans for the future.

Start with defining your goals and desired retirement lifestyle. Then calculate your available assets and retirement income sources. Communicating with your spouse or partner about retirement expectations and working together to create a plan for working toward them can be key to success.

7. Clean up your accounts

Many investors have accumulated a number of retirement accounts over the years. These may include traditional and Roth IRAs and retirement plans with past employers. To simplify your finances and get a better view of your overall financial picture, consider consolidating your financial assets.

Combining retirement assets in an IRA may offer you:

  • Ease in managing your investment strategy
  • Improved tax efficiency
  • RMD simplification
  • Potentially fewer fees

Please keep in mind that rolling over your qualified employer-sponsored retirement plan (QRP) to an IRA is just one of multiple options for your retirement plan. Each of the following options are different and may have distinct advantages and disadvantages.

  • Leave assets in your former QRP, if the plan allows
  • Roll over your assets into an Individual Retirement Account (IRA)
  • Move assets to your new/existing QRP, if the plan allows
  • Cash out or take a lump-sum distribution

Each of these options has advantages and disadvantages, and the one that is best depends on your individual circumstances. You should consider features such as investment options, fees and expenses, and services offered. A Wells Fargo Advisors Financial Advisor can help educate you regarding your options so you can decide which one makes the most sense for your specific situation. Before you make a decision, speak with your current retirement plan administrator and tax professional before taking any action.

When considering rolling over your assets from a QRP to an IRA, factors that should be considered and compared between QRPs and IRAs include fees and expenses, services offered, investment options, when you no longer owe the 10% additional tax for early distributions, treatment of employer stock, when required minimum distributions begin, and protection of assets from creditors and bankruptcy. Investing and maintaining assets in an IRA will generally involve higher costs than those associated with QRPs.

Investing involves risk, including the possible loss of principal. Asset allocation and diversification are investment methods used to help manage risk. They do not guarantee investment returns or eliminate risk of loss including in a declining market. Stocks offer long-term growth potential but may fluctuate more and provide less current income than other investments. An investment in the stock market should be made with an understanding of the risks associated with common stocks, including market fluctuations.

Wells Fargo Advisors does not offer tax or legal advice.