During periods of market turmoil, focus on what you can control and avoid fighting what you can't. You can’t control markets but you can bulk up your retirement savings accounts. Here are 10 way to boost your retirement accounts ( your 401k, 403b, IRAs etc.), regardless of poor investment “weather conditions” (viz., the current market correction):
1. Don’t leave money on the table if you’re actively funding a retirement plan
Qualified employer plans – such as 401(k) plans – often have a matching employer benefit. Do you know what your match is? Don’t leave money on the table by deferring too little to capture all your matched dollars.
2. Opt out of deferring into a retirement plan if it’s a lousy plan and you have no employer match
Many teachers I work with have no employer match, and their plans are unattractive (expensive, poor investment choices). If that’s the case, they’re better off funding their own Roth IRA, even if the annual limit is 5.5K and they don’t receive a tax break up front.
3. Consider after-tax (Roth 401(k)) deferrals, if available
If your employer offers after-tax contributions to your 401(k), see if It makes sense to forgo the immediate tax deferral benefit and get more bang for your buck. For example, a $18,000 annual deferral is worth 50% more than the equivalent $18,000 in tax-deferred dollars, after tax. if you’re in a 33% tax bracket at retirement, your $18,000 pretax amount shrinks to $12,000 after taxes are withheld.
4. Don’t forget spousal IRAs
If you’re a stay at home spouse or you don’t have access to a qualified employer retirement plan, you’re entitled to fund your own spousal IRA (up to 5.5K/year if you don’t exceed joint income thresholds). Even better, fund a Roth IRA with 5.5K after-tax dollars if it makes sense to forego the tax deduction when funding an ordinary IRA.
5. Pick low cost index mutual funds whenever possible
Do you have access to low cost index funds in your retirement plan? The annual savings and benefit of investing in these funds are phenomenal. For example, you save $8,500 per year if you invest in index funds charging 0.3% versus actively managed funds that charge 2%. The lower your costs, the faster you money will grow.
6. If your 401(k) or IRA is “out of sight and out of mind,” consider asset allocation funds
Many investors pay little need to their 401(k) and IRA accounts. That’s OK, as long as you’re invested in a well-diversified “all in one” portfolio that does a decent job of matching your age and risk tolerance. Do your research to select the fund that’s right for you --one fund company’s “2025 Retirement” fund can be drastically different from another company’s “2025 Retirement” fund.
7. To reduce risk, minimize employer stock holdings
Avoid piling much, most or all of your retirement account in your company stock unless you can afford to take a bath with a concentrated stock position.
8. Don’t panic and sell when the going gets tough
Pay no heed to market corrections. Keep dollar-cost-averaging your deferrals, month in and month out. Your return will be higher than individuals who try to time market entrance and exit points.
9. Asset location matters
Consider asset location if you have a taxable investment account. For most people, taxable bonds, REITs, commodities and high dividend-paying stocks (e.g. large cap value) comfortably fit into an IRA or 401(K). By comparison, taxable portfolios are great receptacles for growth stocks, municipal bonds, Exchange Traded Funds and tax-advantaged mutual funds.
10. Consider a QLAC (qualified longevity annuity contract) in your 401(k)
A new ruling allows you to invest up to 25% (maximum 125K) of your retirement account (401k or IRA) in a qualified longevity annuity (a deferred fixed annuity). The annuity is exempt from taxable required minimum distributions (RMDs); tax is deferred until you begin to receive payouts. The longer you wait to begin payouts, the more you’ll receive. Go to www.go2income.com/qlac for various annuity options issued by insurers (e.g. MetLife, NY Life,). Having this type of annuity can help reduce the risk of outliving your assets.
In sum, how do you know if you’re saving enough for retirement? Or if your retirement dollars will last you through retirement? Consult with an advisor who doesn’t benefit materially from products (annuities, mutual funds) that give him/her a commission.. A fee-only (no products sold) advisor can tell you if your portfolio mix and savings rates are right for you.
Eve Kaplan is a Fee-Only (no products sold) Certified Financial Planner® Practitioner with 30+ years of investment/planning experience. Kaplan Financial Advisors upholds the highest fiduciary standards in the planning industry. Eve opened Kaplan Financial Advisors in 2004 to provide comprehensive financial planning and investment management services to single women and couples. Eve can be reached at 908-898-0549 or Eve@KaplanFinancialAdvisors.com. Visit her website at www.KaplanFinancialAdvisors.com
Copyright © 2011-2018 by Eve Kaplan
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