Whether you’re in the last years of contributing to your 401(k) or you’re about to start withdrawing from it, today’s economic climate is likely making you second guess your retirement plans. Several factors ring alarm bells — high inflation means that it costs more to live every day, and, over time, higher inflation eats away at your savings. The combination of greater expenses and less money to pay for them makes people feel like too many things are out of their direct control.
While you can’t do much about the economy or the markets, there are things you can do to help make your situation better. Whether you're managing your investments on your own or working with a financial advisor, here are 4 ways to maintain control of your retirement plan.
1. Assess Your Assets
It’s normal human behavior to ignore problems and hope they’ll go away. Your 401(k) balance has been mostly going up for the past ten years. It’s been a pleasure to glance at your statement each quarter and see your investments growing.
However, these last two quarterly statements probably show losses. The stock market has dropped more than 20% from its highest point in January 2022. A diversified target date fund typically found in many 401(k) plans has also lost about the same in value. That’s unsettling. For those who are early in their career, it’s uncomfortable, but for people on the brink of retirement, it can be terrifying.
Keep in mind, until you actually sell your investments you haven’t actually lost money because it’s only when you sell that you realize a loss. Otherwise, you still own the same number of shares in that exchange-traded fund (ETF), mutual fund, or individual stock today that you owned when the stock market was making record highs, but today the market price per share is lower. History shows that overall stock prices return to then surpass those low prices, and it’s that long-term investing perspective that helps people stay invested through the turbulent times and grow their wealth.
If you’ve built up a retirement fund designed to last for decades of retirement, you’re not going to need to withdraw all the money at once. Even if you had to sell stock to withdraw 4% of your retirement portfolio right now, you’d still have 96% left that will likely recover and grow over the years of your retirement. The balance you have today is not the amount you will have forever, and history is on your side for those share prices to rise over time.
Gaining control: Even though it’s sometimes hard to do, review your portfolio two to four times a year. Once you assess the situation, you might find that it’s time to rebalance. When the market changes, as it has in 2022, it might be time for the composition of your retirement portfolio to be adjusted, too. If you don’t want to rebalance on your own, find a fee-only fiduciary who specializes in retirement income strategies and cash flow analysis. Finally, pull up a historical stock market chart and reassure yourself that market levels rise and fall over time — but ultimately rise. Call or text your investment advisor to talk about your worries. If your advisor isn’t able to reassure you, it might be time to find a new one.
2. Decide When to Retire
Know where you stand financially, then use that data as a starting point to help you figure out when to retire. Timing is everything. When you have a full-time job paying a salary that appears in your bank account every two weeks, it’s hard to imagine that money going away. But when you fully retire, that’s precisely what will happen. Your retirement years can stretch into decades, and the more money you’ve saved, the better protected you are. The longer you can bring in outside income, the longer you can leave your own savings alone to grow. Deciding to work an extra two or three years can add as much as 30% to your total retirement income, and that decision is entirely in your control.
One consideration in making employment decisions is your health. You want to weigh the mental and physical health costs of continuing to work longer. If you have a job that negatively affects your health, putting off retirement might not be wise. In that case, changing to a less-stressful job could be a way to keep some income flowing without making yourself miserable.
Gaining control: Work out the math yourself or consult a fiduciary financial advisor who specializes in retirement income planning to determine when or if you can stop working. Consider switching roles at your current job, changing jobs completely, or working part-time.
3. Manage the Start of Social Security Payments
Just because you can draw Social Security payments at age 62 doesn’t mean you should. When you let the Social Security Administration (SSA) know to start monthly payments at age 62, you lock in a lower amount for the rest of your life. For example, take a person who is eligible for about $1,000 per month if they initiate benefits at age 62. If they wait until the SSA’s Full Retirement Age of around 67, depending on birthdate, they’d get about $1,500 per month for life; if they wait until 70, that amount pops up to about $1,900 a month for life. That is almost $1,000 more month for the 70-year-old.
If you knew you weren’t going to live long, starting as soon as possible would be best. But more Americans than ever are living into their 90s, and if you make it that long, starting at 62 means you’ll end up losing out on thousands of dollars of benefits — during years when you might have outlived your retirement savings and really need higher cash flow.
The SSA's website explains how retirement-age-based payments work, but if you have complicated financial family relationships — or you’ve lost a spouse or have remarried — it can be worthwhile to get the advice of an expert. A qualified fee-based fiduciary advisor can run "what if" scenarios using sophisticated software that can pinpoint the optimal time to start taking your benefits.
Gaining control: After you work out your post-retirement budget, run the numbers using the SSA’s handy calculator and figure out how much your Social Security monthly check will be depending on the age you start drawing.
4. Choose Who to Help Now and After Your Death
A common problem retirees face is the appeal from relatives, friends, and charities for financial help. The request can be direct or more insidious, but the upshot is that someone you care about or are related to wants you to give them some of your retirement money. If you have enough to live on now and for the potential decades of your retirement, then you could choose to help them. Conversely, just because you have enough doesn’t mean you should feel compelled to help. If you’re being pressured, a financial advisor or trusted contact could be a good resource to help you find the right words to say no.
If you’re certain you’ll have more than enough money to cover your own lifestyle and healthcare costs, then consider giving some of it to your future heirs right now. In the U.S., the IRS allows you to give away up to $16,000 per year per person (in 2022) before you would need to file a special form with your tax return. But unless you are a multi-millionaire giving away tens of millions of dollars, you still won’t pay tax on your gifts, even if you do have to file IRS form 709. Married couples can double their gifts, which means they can give up to $32,000 to each person per year before the form is required.
Gaining control: Your money is yours to do what you want with, now and after you die. You don’t have to help relatives, nor is it wrong for you to choose to help them — it’s your decision, and because it’s your money, it’s the right decision. Be aware of the pleas for money that come your way and make deliberate, financially reasonable, and well-thought-out decisions before you provide financial assistance to loved ones.
Actions to Take Today
As you take defensive action to maintain control over your retirement, decide whether to do it yourself using digital tools or collaborate with a rigorously vetted, fee-only fiduciary financial advisor who works only for you, not as an agent for a brokerage firm or insurance company. If you’re getting close to retirement, choose a fiduciary who has the expertise and specializes in retirement income planning. They can help you:
- Make a tax-focused plan on your own or with their advice
- Develop an investment strategy you will be able to stick to over time
- Devise ways to pay down high-interest debt
- Shore up cash accounts
Finding the right financial advisor can be challenging. Let Wealthramp help you find the right advisor who will help you with your personal financial needs and situation.
Pam Krueger is a recognized investor advocate, award-winning personal finance journalist, and founder and CEO of Wealthramp, a free advisor matching platform that connects people with rigorously vetted fee-only financial advisors. She is also the creator and co-host of MoneyTrack, which aired on PBS from 2005-2019, and Friends Talk Money podcast for PBS Next Avenue, currently in its 7th season.