Your New Retirement Puzzle
Given all the uncertainty that it seems our country (and the world) is going through right now, that age-old expression that uncertainty is the ONLY thing we can count on is ever-present. People are feeling "the crunch" now for different reasons, and it is causing many to reevaluate their long-term plans because of some short-term decisions they may have to make. As people just begin to consider stepping towards opening businesses and inching towards a new normal, it's a good time for establishing some new habits and feelings about what you should be doing concerning your money.
Here are some things to consider moving forward:
- Reexamine Your Lifestyle: After a few months of spending way more time at home than usual, most people found that they were forced to find other ways to enjoy themselves besides their regular activities that drain their wallets. Eating out and shopping are some of the guilty "go to's" here. Hopefully, people will hold on to their future memories of dinner table conversations, board games, and neighborhood walks that helped see them through quarantine and opt to continue doing them.
- Volatility Is Real: It's obvious that major events happen that will seem to drop a hand grenade right in the middle of your portfolio. Statistics show that as long as you ride out that wave, you'll be okay on the other side. It's always tempting to sell and dump positions to avoid losses, but since NOBODY can predict where the bottom is, you're better off staying invested. Over 90% of the success of a portfolio is due to its diversification, and not what you bought and when you bought it.
- Loans Vs. Distributions: If you are faced with pulling funds out of your 401(k), opt for loans instead of distributions. This will give yourself a break from having to pay the penalty for early withdrawals before age 59 ½. Plus, you'll be able to get the funds back in there and pay yourself a little bit of interest as well.
- Reduce Risk With Age: Warren Buffet recommends a 90% stock/10% bond portfolio. But if you're closer to retirement and have had a hard time watching your balances take such a hit from effects of the global pandemic, you should consider seriously adding more fixed income to ease the seesaw swings. Many advisors recommend having "your age" as the percentage of bonds you should have. If you are 45, you should have 45% in bonds.
- Protection Strategies: Insurance is definitely the least fun thing to talk about in financial planning. But because bad things happen to good people all the time, protecting your future is an important part of your financial puzzle. Consider taking a portion of your assets and using some type of investment that give you protection against the inevitable market swings that we're certain to experience.
Remember: we know that we will experience economic uncertainty at different times, and nobody will effectively be able to predict when those times will come, but if you remember to commit to some of these principles, getting through them could be better the next time.