News headlines give anyone saving for retirement plenty to worry about. Inflation. High gas prices. Rising interest rates. Rumblings of a possible recession. It’s enough to make even the savviest investors wonder if they’ll outlive their money.
But worrying is no way to live your life — and definitely not a way to live your retirement.
While we can’t predict how the market will behave, we can create a holistic financial plan built to minimize volatility and economic uncertainty.
As an example, let’s say the market drops and your IRA’s value drops too. In such a scenario, ask yourself: Did this affect your overall retirement plan? It shouldn’t if that plan accounted for recessions and growth as normal parts of the economic cycle.
Here are a few things that will help you create a retirement plan that’s ready to endure those market ebbs and flows:
Take control of your tax planning
If Congress doesn’t act, those 2017 tax cuts are scheduled to come to a jarring end at the close of 2025, which means rates would return to their previous level in 2026. You can look at this as a reason for anxiety, but there’s also an opportunity. Before this happens, you should consider taking advantage of these historically low tax rates by converting your tax-deferred retirement accounts to Roth accounts.
You do pay taxes when you make the conversion, but if you start now, you can do so in increments while tax rates are lower. But what if you are in a situation where your IRA has temporarily lost value? As an example, let’s say a $1 million IRA dropped to $900,000. Your instinct might be to wait for a market rebound before you convert to a Roth, but why wait? You have less to convert, which means less to pay taxes on. When the market recovers and that IRA’s value takes a leap upward, the leap is tax free.
Consider this powerful bond alternative
A traditional investment mix many people feel comfortable with is 60% in stocks and 40% in bonds. The concept behind this particular balance was that when stocks went up, typically bonds went down, and vice versa. That’s excellent in theory. But recently, stocks and bonds have been moving in lockstep. And we can expect to see losses continue as interest rates rise. What should investors consider as a bond replacement?
Consider fixed-indexed annuities as a substitute for bonds. A fixed-indexed annuity acts as a stabilizer in your portfolio because you can’t lose your principal. Also, when the market starts to return, it will gain in value.
You shouldn’…….
