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Dos and Don’ts of Retirement Planning in a Scary World

Inflation has reached nosebleed levels. The S&P 500 is sinking fast. There is war in Europe. So how can people plan for their retirement in the face of such obstacles?


Should they invest more aggressively? More carefully? Go back to work? Work longer? Moving to a cheaper neighborhood?

There is no shortage of worries about funding retirement. And that’s especially true now. The April monthly IBD/TIPP survey focused on this challenge. Forty percent of adults said health care costs were a top concern. Saving enough money and the impact of economic certainties were next in importance. For older respondents, inflation and taxes are also among their top concerns. The youngest respondents, aged 18 to 24, worry about both taxes and housing costs.

So what’s the best way to plan for the future – whether it’s five years from now or 30 years from now – when the world is making retirement planning harder?

“The short answer is, ‘You can’t. You can’t plan with certainty,'” said Ric Edelman, well-known personal finance author, radio host and financial adviser.

Retirement planning under uncertainty

But that doesn’t mean planning for retirement is now impossible. It’s just that you need to reset some of your expectations given how quickly key factors have changed virtually overnight. Edelman added, “It’s unrealistic to think that you can strategize now for the next 30 years. Instead, strategize just to get through this period of uncertainty.”

The reasons are painfully clear. Inflation rose to a rate of 8.5% in March. This is the largest increase in the cost of living since 1981.

In April alone, the S&P 500 fell 8.8%. It was its worst April since 1970, according to Dow Jones Market Data. So your 401(k) account and your IRA have almost certainly shrunk so far this year.

As well as some of your retirement dreams.

It’s time to play defense in retirement planning

This means for your retirement planning that it’s time to play defense, not offense. Above all, don’t make major purchases or dramatic financial moves unless they’re vital.

Bad moves now would leave you with fewer dollars that can skyrocket in value on the next rally, says Judith Ward, financial adviser and vice president of a giant mutual fund complex T price. Rowe (TROW).

And leave your money in existing diversified funds. This way you can thrive from the first wave of the next rally, which is usually an unexpected jump. As for individual stocks, have cash on hand so you can reinvest when there is finally a confirmed rally. “Remember the market has always come back,” Edelman said.

Sure enough, the market rebounded from the World Wars, the Great Depression, the Great Recession, the dot-com bust and other setbacks.

“Don’t do expensive moves that you can put off for a few months, a year, or even two,” Edelman said.

For now, good retirement planning means getting through the market malaise in the best possible shape to take advantage of the next bull market.

Here are the steps to achieve this.

Retirement planning do’s and don’ts

Stay in the market. “Keep investing,” Ward said. Especially with mutual funds, resist the temptation to go cash. Why?

Individual mutual fund shareholders rarely, if ever, exit the market near its peak amid market volatility. And they rarely, if ever, return to the market at its lowest.

In the 10 years ending December 31, 2015, the broader stock market in the form of the S&P 500 has risen 7.31% on average each year. But entering and exiting the market in reaction to market ups and downs, the typical U.S. equity mutual fund shareholder earned just 4.23% per year on average, according to the research firm. Dalbar.

One more advantage to leaving your FCPs in place: the price of shares has fallen. So for the same number of dollars you already put into your retirement accounts, you get more shares. “It helps your accounts take off once the market finally rebounds,” Ward said.

Staying the course applies to the long-term part of your savings portfolio, not the part you use to pay normal living expenses if you’re retired or have major expenses looming.

With your individual shares, you buy, hold, add or sell according to the rules of a proven strategy that tells you when to enter and exit securities.

Asset Allocation Tips

All of these tips apply regardless of your age. This is especially true when it comes to your asset allocation. That’s what it means to resist the temptation to go cash. Stick to your investment plan. Don’t touch your asset mix.

And what should your asset mix be? According to T. Rowe Price, investors in their 20s and 30s should have 90-100% of their money invested in stocks and equity funds. In your 40s, only do 80% to 100%. In their fifties, 65% to 85%. Seventy: 45% to 65%. Seventy years and over: 30% to 50%.

This is generic advice for someone who expects to retire at 65 and live another 30 years. If you have a higher risk tolerance or hold high cash, increase your equity weighting accordingly.

Should I continue to work?

Stay at work. In the middle of your retirement planning, let’s say you’re trying to decide if you want to work. Even if you can’t wait to retire and move to a warmer climate, you can have it both ways.

You can move to the Sunbelt. And you can continue to earn salary and benefits. “Over the past few years, people have learned that they can work remotely and still be productive,” Ward said. Technology makes this possible. And employers are increasingly supportive of remote work, Ward says.

Even better, your move may be temporary. If your company allows you to work remotely, it certainly won’t care if your remote work alternates between your regular home and a temporary sunny location.

Consider it a practice. “It’s a good way to test if you like this place enough to move there once you’ve truly retired,” Ward said.

Your financial checklist

Part-time work? How about a third option: work part-time? “Run the numbers,” Ward said.

This means asking five key questions about retirement planning. First, would your salary be sufficient? Second, would a move to part-time reduce your stress and leave you feeling more energized? Third, could you afford to miss out on benefits like health insurance, retirement savings, and a company match if that were to happen? Fourth, would you receive other benefits such as sick pay, vacation, and scholarships or training? Fifth, how would you value intangible rewards such as fulfillment and a sense of accomplishment?

Weigh your tax consequences. What if your retirement planning makes you lean towards a part-time job? Weigh the negative tax consequences.

  • You will likely have to pay your own taxes, perhaps in a higher bracket.
  • You can be responsible for 100% of your Social Security and Medicare contributions, not just 50% as a full-time employee.
  • Many tax credits and deductions depend on your adjusted gross income (AGI). These credits gradually disappear or decrease as you earn more, until they eventually become completely unavailable. Make sure your part-time salary, combined with other sources of income, won’t cost you a credit or deduction you rely on.

There are also potential benefits. You may be entitled to a health insurance deduction and earned income tax credit.

Impact on social security benefits

Help your social security benefits? Suppose you are considering a job change. To or from part-time or full-time work, it doesn’t matter. You may have valuable skills. Your salary could be high. It could help you plan for your retirement by increasing your Social Security benefits.

How? Because your benefits are based on your 35 highest-paying years of work, Ward says. Your annual salary during your golden years could be much higher than it was during, say, your first years on the job. To see the impact on benefits, see this calculator.

Hurt your social security benefits? However, if you are younger than your so-called full retirement age (FRA), part of your Social Security payments may be temporarily withheld if you earn too much. Beyond FRA, this penalty disappears.

If you are younger than your full retirement age, the Social Security Administration deducts one dollar of benefits for every $2 you earn above the income limit. In 2022, this limit is $19,560. If you not only wait until full retirement age but until 70, your monthly benefit is increased. Beyond that, you can’t increase your monthly payment from Uncle Sam simply by delaying the start of Social Security.

Then yes. The turbulent stock market and economic headwinds make retirement planning more difficult. But by making smart adjustments, you can ensure you’re sailing in one piece.

Follow Paul Katzeff on Twitter at @IBD_PKatzeff for advice on retirement planning and actively managing portfolios that consistently outperform and rank among the top mutual funds.


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