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How To Handle Your Retirement Savings Today

How To Handle Your Retirement Savings Today Sunset Waterfall

I received a text message from a family member recently and he asked a question that is going to come up during these uncertain economic times.  My retirement account lost a whole bunch of money, is it time to panic and take it all out!?!?  We talked and I shared how to handle your retirement savings today and every day moving forward.

These are the questions you should be asking yourself when it comes to saving for retirement.  Let’s dive in, but first a message from my legal team.

Quick disclaimer, I am not a registered investment advisor or have a license to give investment advice.  My words are simply for your entertainment and should not be considered investment advice. 

Are you retiring in the next year?

Unless you are in your 60’s the answer is almost always no. 

Although a few “I wish” will be sprinkled in with laughter and in many cases a drink from their favorite alcoholic beverage of choice.

Retirement Savings Today Jordan Laughing

So if you are not retiring in the next couple of years, what should you be doing with your retirement savings today?

Are you in the retirement investments you plan to own for the next 10 years?

When my family member asked the question about selling all of his retirement savings the question came from a logical place.  His current investments had been going down.  He was worried about what he was invested in or the investment term his current asset allocation.  

Asset allocation is a fancy word for what your investment portfolio is made up of like stocks, bonds, and real estate.  Increased asset allocation can often mean less risk.  

When he looked at his investments in his retirement accounts he wasn’t happy.  He had never really looked at what his retirement savings was invested in until it started going down. 

When the stock market and his retirement savings were going up he like many of patted himself on the back and assumed himself a genius investor.  

Allocation and Risk

Now here’s the important message in all of this.  His asset allocation wasn’t good when the stock market was going up and then became bad when the stock market was going down.  It just wasn’t the right asset allocation that he felt was best for his long term retirement savings.

Asset allocation, risk, and maybe even your fee only financial planner or financial advisor to talk you off the ledge during downturns are what make this the right investment mix for you.  

Personally I am OK with the ups and downs of the market because I know that I won’t be touching my retirement savings for 20-30 years.  

For me it’s important to look at my investments in that time horizon.  I tend to look at my investment contributions in 10 year segments.  

I’m 38 this year and still have 22 years left until I turn 60.  My next 10 year time horizon is more aggressive with my retirement investments.  I know that while a downturn is likely to happen I won’t need to sell any of my retirement savings, instead I’m more likely to just keep adding money.

Your retirement accounts need to be adjusted for your risk tolerance. 

By that I mean when your retirement accounts could lose 20 or even 30 percent of it’s value and you would still remain calm and not freak out. 

That’s your risk tolerance.  The level right before you freak out and do something crazy, like hit the panic button and sell it all.

What should I do with my future retirement contributions?

Here’s the quick and simple approach to retirement investing.  Remember having an emergency fund and your high interest credit card debt paid off is part of this simple approach.

DIY Retirement Saving

Have a plan

As a DIY retirement investor, my plan is simple and I suggest the same.

  • Choose a low cost, low fee index fund (s) or target date fund that fits your retirement age.  Vanguard and Fidelity are my favorites if available.
  • Next contribute to your 401K up to your company match.  If you don’t have a company match then move to the next step.
  • Contribute to your Roth IRA
  • Contribute to your other retirement accounts.  401K, 457b, H.S.A., to name the most common.

That’s all of the plan you really need at this point.  In my humble opinion your goal should be to contribute 15% or more to retirement.  This is called being a super saver.  

Let me give you two (2) examples of a super saver approach based on current 2020 Roth IRA contribution limits.

Meet Richard

Richard makes $50,000.  He follows the simple advice mentioned above and contributes 4% to his 401K to receive his company match.  He then contributes the full $6,000 or a little over 8% to his Roth IRA. 

With those two (2) steps alone he has contributed 12% of his salary to retirement and 16% if you include his company match.  Good job Richard!

Meet Jane

Jane makes $100,000.  She also follows the outlined plan and contributes 4% to her 401K to receive her company match.  Jane then contributes the full $6,000 or 6% to her Roth IRA. 

With those two (2) steps alone she has contributed 10% of her salary to retirement and 14% if you include her company match.  Good job Jane!

Keep it simple because while the first step is important, all three (3) are needed for a successful retirement.

Invest automatically

Whether it’s your companies 401K or your Roth IRA this needs to be automatic every week, month, or year depending on how you have it set up.

If you are like Dick and Jane in our examples you have selected to automatically have the same percentage that your company’s 401K matches taken from each paycheck.  Done, good job.  

The Roth IRA should be set up the same way, with an automatic investment.  Most people tend to invest on a monthly basis and in Dick and Jane’s example this would amount to adding $500 per month for a total of $6,000 for the year. 

Once this is completed, you are ready to move on to what I consider the most important step.

Repeat and Wait Till Retirement

The key to all of this is continuing to add money and let your retirement savings grow over time.  Repeat and wait for the next 20 or 30 years.  Retire and use the money.

I don’t want it to be any more complicated than that.  

Keep it simple. Have a plan, invest, and repeat until retirement.

The stock market is going up.  What should I do with my future retirement contributions?

Invest automatically and repeat.  If the stock market is going up that means your money is growing and that’s what we want to happen.

The stock market is going down. What should I do with my future retirement contributions?

If the stock market is going down that means you are able to purchase investments at a lower price.  Then when the stock market goes up it will create more growth because you bought at a lower price or on sale if you will.

The only addition I would make is that if the stock market is down, now might be the time to check your spending and see if you can contribute a little more.  In Dick and Jane’s example they still had a little room to reach that 15% super saver goal.

Now could be the time increase your retirement savings.

What does this mean for your retirement accounts?

If you are 10 or more years away from retirement that means you have plenty of time to recover from a recession or even a global pandemic.  In fact historically speaking it’s even very likely to grow and earn more money.

Personally I wouldn’t make any adjustments to my retirement accounts right now.  However this is a great stress test to see how you react and feel about your retirement savings going down and your risk tolerance.  

Your retirement savings today is most likely down from all time highs but the good news is everything’s going to be a little brighter in the future.

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