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Due to recent market volatility, some Americans who plan to retire in the next 12 months may have less money saved. A wealth manager says there are ways you can protect and combat your retirement plan.
Last week, Donald Trump imposed a “reciprocal’ tariff on imports of many foreign countries. Investors began selling stocks, and major indexes fell to their lowest level since the COVID-19 lockdown.
Even though Trump announced a 90 day pause on “reciprocal tariffs” except those against China the stock indices dropped again Thursday morning. The volatility has an impact on many Americans’ 401(k), retirement plan savings, which rise and fall along with the stock market.
While many 401 (k) investors can expect to see their money return once the stock market recovers, those planning to retire in the next 12 months may have less saved for retirement. Jake Falcon, CEO Falcon Wealth Advisors said that 4.1 millions Americans will reach 65 in the next year and may need some changes made to their retirement plan.
Investopedia questioned Falcon on how 401 (k) investors who are about to retire can deal with the volatility in the stock market caused by tariffs. The interview has been edited to ensure clarity and brevity.
INVESTOPEDIA INVESTOPEDIA How will current stock market volatility affect those planning to retire within the next year?
JAKE FALCON Market disturbances have a significant impact on the retirement funds of people who plan to retire soon. When the stock markets are volatile, the value of retirement funds, which include a mixture of stocks, bonds and other assets can fluctuate dramatically.
If the market drops sharply just as someone starts to withdraw from retirement savings, they might have to sell their assets at a loss. This will reduce the value of their portfolio, and could jeopardize their long-term security.
INVESTOPEDIA – What can retirees who are just about to retire or those who are on the verge of retirement do to make up their losses caused by stock market volatility?
FALCON: Let's say you just retired, and you didn't have the appropriate asset allocation to begin with. That's when you really need to meet with a financial planner. And if you do need to make adjustments, you've got to understand the long-term implications.
In an extreme circumstance, and you're retired, you may need to go back to work. So if you have your asset allocation wrong, and you're retired, and now your plan is not going to work, then the best thing to do is cut your spending here, which is harsh, and people don't like to hear that, but that's why it's so important to do retirement planning before you retire, and make sure that you have market cycles like this factored in before they happen.
You may also want to consider converting your IRA into a Roth because your stocks have fallen. This is a good time to convert your IRA to Roth or to harvest tax losses if you are selling stocks in a brokerage. We’re examining the losses to see if they can be turned into an opportunity. Also, market crashes don’t have to be bad. There are ways to improve your plan.
INVESTOPEDIA How should retirees deal with the recent market volatility impact?
FALCON: I like to use an acronym called SEE … it's from [corporate coaching firm] Vision Pursue
First, 'separate' from the events that are occurring and try to look at your picture as if you're an outsider. So my whole key here is that I'm trying to coach them to gain some objectivity, look at the facts, and look at their financial plan.
Two would be E— 'embrace.' I want them to embrace their emotions fully, feel whatever they're experiencing, and understand that emotions are short-term and will come and go.
The third piece would be 'evaluate'. So again, after they have fully separated from the situation, they've embraced their emotions. What are the next steps? Do they have to make an appointment with a financial planner? Do they need Roth conversions, or tax loss harvesting to be considered? Does their allocation not align with their financial plans? And if they make an amendment, what will this do to their plan? Are they better off going back to the office or cutting their expenses?
