While US workers are aiming to minimize the impact of economic volatility on their retirement accounts, the realities of high levels of inflation and other macroeconomic realities are making things very difficult according to subject matter experts in a discussion at Yahoo Finance.
“If you are a retiree, you have to be paying attention because if you have to take those required minimum distributions from your retirement accounts this year, you’re going to be selling, and that’s not going to be a pleasant situation for you, ” said Kerry Hannon, senior columnist and personal finance strategist for Yahoo Finance. “So it’s pretty rocky and pretty scary. But frankly, if you’re young, you’ve got time.”
That time could lead to a bounce-back of stability, she says. The thing that likely makes the current levels of volatility feel different in comparison to years past, however, is the fact that the situation has been very different over the past couple of years, she explains.
“You’re going back to where we were in a way,” she says. “But it is startling for people to see their accounts drop 20%. And what’s happened that’s new in recent years, really, is more and more people have more equity holdings in their 401K plans and in their IRAs. It used to be you had this equation: you would say 100 minus my age is going to be the percentage I’m going to have in equities. Not so much anymore.”
Now, people have as much as two-thirds of their retirement accounts invested in equities, she says, which can rise even higher than the retiree in question is in their 50s, or drop lower if they’re older.
“But people are still holding a lot of equities in these accounts,” she says. “And I must say, just a caveat to that is it’s not necessarily a bad thing because with longevity, we’re living longer lives. You need that stock to give it that bump, that equity boost that where we can get extra growth, but you have to be patient and you have to be willing to take that risk.”
When asked about the possibility of shielding accounts from negative impacts, Hannon says that moving to more conservative investments is an option but may not always have the desired impact.
“So often in today’s world, if you’re invested into your 401K plans, chances are you’re heavy into equities,” she says. “I personally like index funds, but those took a hit as well. But at least you have a bit more balance there. And you can save on costs and fees in many ways.”
Read the talk at Yahoo Finance.