It’s an unfortunate fact that volatility in the economy can impact every aspect of your savings, including the amount you put away for retirement. We tend to think of retirement savings as something immutable, but this isn’t the case at all. Everything from the value of your stocks to the value of Social Security can be impacted.
There are ways that you can protect yourself, though, and build up stable enough retirement savings that you can protect yourself when times get rough. This article will lay out several steps that you can take to ensure financial stability during periods of economic volatility.
Strategies for Navigating Retirement Savings in a Volatile Economy
There are a number of different things that you can do to ensure your financial health in a volatile economy. Let’s take a look at the major ones.
Diversification of Your Investment Portfolio
One of the essential things that will help you protect your financial security during potentially volatile periods is to find ways to diversify your investments. The trick is to include a variety of investment types in your portfolio and include a mix of stable and potentially profitable ones together. Here are some of the things that you should consider including.
ETFs and Mutual Funds
Stocks are, of course, one of the most popular investment types. In particular, investing in ETFs or mutual funds can be a wise strategy to diversify your investments.
As these funds tend to contain more components than standard stocks, you can hedge your potential losses more easily by including a variety of different kinds of stocks in them. One good idea is to include core stocks in your package as they are also a proven hedge against volatility.
Annuities can be a reliable way to invest in an insurance plan and know that you will receive payments back when you retire. While you are working, you pay into an annuity account either on a regular basis or in single, lump-sum payments. The holding institution will later provide you with regular payments potentially throughout the entire period of your retirement.
Single-payment annuities in particular are considered reliable because they guarantee a fixed rate of return. In other words, however severe a recession might be, the holder will receive the same payments regardless of what is happening in the stock market.
Building an Emergency Fund
Another thing that you can do is to build up an emergency fund. There are several ways that you can do this:
- Open a savings or money market account. These accounts slowly build up interest to raise the amount of money that you put into them.
- Think about the amount that you would need in an emergency. If the economy starts to sour, it could last for several months. Financial experts recommend putting away at least enough to cover yourself for three to six months.
- Set up an automated transfer each month. This way, you won’t have to worry about remembering to do it every time, and you will know that the money is there if you need it.
- If you do have an emergency and have to withdraw some of the money, be sure to replace it as soon as possible. You never know when there will be another problem.
In general, you should develop sound budgeting methods that will allow you to put away money each month and still take care of your bills and other necessary expenses. Depending on your budgeting needs, you might only be able to put away a small amount initially. But in the event of an emergency, you will definitely find that it was worth the effort.
Utilizing Tax-Advantaged Retirement Accounts
There is a category of retirement account types that are generally known as “tax-advantaged.” This refers to accounts, investments, or savings plans that are either exempt from taxation, tax-deferred, or offer some other type of tax benefit.
Tax-advantaged retirement accounts include 401(k) plans, 403(b) and 457 plans, IRAs, Health Savings Accounts, and municipal bonds. You should look for a tax-advantaged account that will prove stable in a volatile economy. For example, if you invest in a gold IRA, it will likely retain its value when times get tough. Precious metals have a long history as hedges against inflation, and gold in particular has proven to be a solid asset when other stocks go awry.
Reevaluating Your Retirement Goals and Timeline
It is a good idea to reevaluate your retirement goals on a regular basis, particularly if your situation changes or the economy goes bad. There are several things that you should consider when evaluating your retirement plan:
- Look at your overall savings. In considering the amount that you put away on a regular basis, you might find that you need to readjust your plan to contribute more to your retirement fund. You might also find that you can relax a bit if you’ve already been contributing large amounts, or readjust your overall timeline. Each situation is different.
- Experts recommend that you max out your IRA if you have one. IRAs have a contribution limit of $6500 (as of 2023), and the remaining amounts do not roll over into the following year.
- Similarly, if you have a 401(k) or a similar plan, be sure that you are putting enough into it. Look to see that you are reaching an employer match on the amount you put in. Match amounts vary by employer, so you should check to see the amount that your employer offers.
Seeking Professional Financial Advice
Another thing that you should do is talk to a certified financial planner. CFPs can help you with many aspects of your retirement and other long-term financial planning. This includes the following aspects of financial planning, among others:
- Managing your income effectively
- Avoiding getting into a vicious debt cycle
- Getting investment recommendations
- Allocating your assets wisely
- Dealing with risk exposure in insurance planning
Whatever your financial needs, a CFP should be able to advise you. While you should also be doing your own research, it is best to get confirmation on the wisest possible strategy from a certified professional.
It is never too soon to start planning for your retirement. Like it or not, the economy goes through regular cycles, and you should be prepared to navigate the difficult ones so that you can ultimately keep your savings intact. Learning how to save and invest wisely is critical to keeping your finances in good shape. Talk to a financial advisor so that you can get started as soon as possible.