Don’t panic on 401(k), experts say
While many financial advisers are recommending clients sit tight with their 401(k) retirement savings through these increasingly turbulent economic times, Certified Financial Planner Kim Last said she knows people want more answers.
“For someone who has some time until retirement, sticking to the basic principles of spreading their money around in stocks, bonds and international investments is my best advice,” Last said. “For someone retiring in 2008, things get a lot more complicated. The good rule of thumb is to never withdraw more than 4 percent of the total dollars in all your accounts. For someone with $1 million in all their accounts, do not take out more than $40,000.”
The perfect retirement situation is one in which someone plans to retire and works part-time at a job he loves for 10 or 20 hours a week, doesn’t retire before Social Security is going to kick in, and has his house paid off, Last said.
Financial adviser Dave Kearsley said the smart investors are not reacting to panic.
“They’re not moving at all. They’re smart enough to stay the course,” Kearsley said. “They’ve lived through these times before, many times.”
One financial adviser who did not want to be named said the people he has seen moving funds around have moved from stock to bond funds because traditionally bonds pose less risk and provide more stability.
Last said it’s situational.
She recommends that someone in their 20s or 30s should invest more in stocks and less in bonds. For them, she recommends lifestyle or allocation funds, which are single investments that within them have certain proportions of foreign and domestic stocks, bonds and cash. A person in their 50s getting closer to retirement should weight investments less in stocks, and more into the bonds and cash.
“Even for someone 60 and retiring, you don’t want to put all your money into something that’s safe,” she said. “Look at the cost of groceries and filling your car with gas. Inflation is up substantially. You can’t take all your money out of the market and put it under the bed as soon as you retire, because then you’ll lose from inflation. That dollar will fall to a worth of 95 cents the next year and 90 cents the year after. Your money has to have some growth.”
Last said everyone should at least take inventory of their portfolios with a financial adviser to reassess their risk tolerance every five years, to make sure they are still comfortable with their choices. She said they should shop for an adviser who has experience and with whom they are comfortable.